Bumps in a Boom

The Japanese, whose national life is a continual struggle against a niggardly natural environment, put great store in striving to be Dai Ichi--No. 1. Thanks to a postwar economic miracle that has been even more spectacular than West Germany's, today's Japan can boast of more economic superlatives than ever. It built 40% of the free world's mer chant ships last year, far more than any other nation. It ranks No. 1 in the manufacture of motorcycles, sewing machines, watches, clocks, transistor radios, cameras and binoculars. For a decade, Japan has enjoyed the fastest growing economy of any major nation.

The trouble is that the Japanese have grown so used to soaring production, profits and incomes that anything less than new superlatives distresses them. Though the country is thriving by almost any broad measure, the Japanese economy is now undergoing a readjustment that its economists have termed dekoboko--bumpy. Last week Prime Minister Eisaku Sato declared that the economy "has reached a very delicate stage." Added he: "It is high time that it changed its basic tone from spectacular high growth to a more balanced stable growth."

Props for Stocks. Japan's national output, which grew at an average rate of 12% a year from 1959 through 1963, last year increased 10%; while that was more than twice the U.S. rate, it felt like stagnation to many a Japanese businessman. Industrial production climbed 17% in 1964, personal income rose 10% and unemployment fell below 1%. Yet retail prices have shot up 24% since 1960, industry has been hampered by overcapacity and lower profits, and some 4,900 businesses failed last year, a postwar record. The wobbliest part of the economy, Tokyo's stock market, has hit a slump so serious that the Japanese government has spent $889 million propping up prices artificially by buying snares, will put in another $389 million before month's end.

The sudden bumpiness of the economy has sharply cut spending by both businessmen and consumers. The neonbright streets of Tokyo's Ginza are as crowded as ever, but the costlier cabarets and hostess-filled bars are starving for expense-account customers. The Mikado, one of Asia's largest nightclubs, closed its doors two weeks ago, a high-priced victim of the economic readjustment. In Tokyo's stores, winter clearance sales are commoner and price cuts more drastic than usual. Laden with inventories that they cannot move, some appliance makers, such as Matsushita, have cut production.

Quick & Drastic. What appears to be a recession is largely the result of the government's calculated effort to slow down a dangerously accelerating boom. Lacking almost all natural resources, Japan lives by trade; it is second only to Canada as a market for U.S. goods, sends more of its exports to the U.S. than anywhere else. When prosperity at home rises too quickly, imports rise faster than exports and upset the delicate balance of Japan's economy. In such cases, Japan relies more than any other nation on the power of monetary maneuvers to correct matters. Reason:

Japanese big industry is so heavily financed by the nation's big banks--73% of industry's capital is borrowed --that a change in money policy works quickly and drastically.

When the economy began moving too fast some 14 months ago, the Bank of Japan, which exerts a stronger control over money and banking than that held by the U.S. Federal Reserve System, adopted a tight money policy. Tighter money slowed down internal consumption, discouraged industry from expanding and made businessmen push exports to counter the cutback at home. The result is that Japan has rebounded from a trade deficit in 1963 to what is expected to be a substantial surplus in the first quarter of this year. Because business confidence has suffered in the process, the Bank of Japan has begun to ease up, last month shaved its loan rate from 6.57% to 6.2%. Governor Makoto Usami, one of the most powerful influences on the Japanese economy, feels that the rate should soon be cut even more.

Frugal Consumers. Despite such basic ailments as lagging small industry, inefficiently operated small stores and heavily subsidized agriculture, Japan's prosperity is propelled by two national habits that almost guarantee economic growth. Japan puts a quarter of its gross national product into productive investment, and its people have learned how to make a little go a long way. Though industrial wages average a meager $102 a month and prices in Tokyo are higher than in New York City, the Japanese save 20% of their income. Even so, nine out of every ten families own TV sets, 72% have washing machines, 61% own refrigerators and half the population own electric stoves.

What comes next? For one thing, autos; Japan trails badly, with only 15 for every 1,000 people v. 361 in the U.S. The country also lacks housing, roads and schools to match its amazing industry. As Japan shifts more money and manpower into such comparatively nonproductive amenities as these, its overall growth rate is expected to slow down still more, just as Prime Minister Sato wants. Government planners are aiming at 8% for this year, a rate at which they hope to control inflation. Even at 8%, the Japanese economy will still be expanding faster than that of any other industrial nation.

This file is automatically generated by a robot program, so reader's discretion is required.