[Kahaner:44] Japan econ issues (K.Ejiri)

[Dave Farber <farber () central cis upenn edu>]

To: Distribution
From: D.K.Kahaner, ATIP-Tokyo [kahaner () cs titech ac jp]
Re: Japan Economy, K.Ejiri
Date: 04/17/95 [MM/DD/YY]
This is file name "ejiri.95"


Dr. David K. Kahaner
Asian Technology Information Program (ATIP)
Harks Roppongi Building 1F
6-15-21 Roppongi
Minato-ku, Tokyo 106
 Tel: +81 3 5411-6670; Fax: +81 3 5411-6671


ATIP: A collaboration between
   US National Institute of Standards and Technology (NIST)
   University of New Mexico (UNM)
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ABSTRACT. Speech by K.Ejiri (Chairman Mitsui & Co) on  "Internal - External
Economic Issues of Today's Japan", 2/95, Tokyo










           INTERNAL - EXTERNAL ECONOMIC ISSUES OF TODAY'S JAPAN
                           MR.  KOICHIRO EJIRI
                      CHAIRMAN, MITSUI AND CO., LTD.


                     CANADIAN CHAMBER OF COMMERCE IN JAPAN
                       DISTINGUISHED SPEAKERS LUNCHEON
                               FEBRUARY 1, 1995




Since I have been given the honor to speak in front of the members of
the Canadian Chamber of Commerce in Japan today, I first thought that
speaking about trade and economic matters of Canada and Japan would be
appropriate.  However, there are no crucial economic or political issues
between our two countries.


While the Canadian economy grows steadily, Japan is in the midst of a
difficult phase, being hit by both "endaka" (or high yen rate) and
depression. Japan is striving to respond to the changing economic
environment and to reshape her economic structure.


For today, I therefore thought it would be more apt for me to present my
personal views on problems and issues the Japanese economy now faces,
and to obtain valuable comments or suggestions from my Canadian friends
here, I would thus like to focus m speech on the Japanese economy.


The Japanese economy is at last tending to recover, after three and a
half years of recession. The two important factors, namely individual
consumption and capital investment, are still inactive.  However,
certain signs of brightness we see these days owe very much to the
favorable Canadian and American economies, the growing Asian economy and
the recovering European economy. Had the current overseas economies also
been severe, the Japanese economy would have been driven into an
extremely crucial state.


The large price differences at home and abroad, which has become more
distinct due to "endaka," is changing both the consumers' and
corporations' consciousness towards price and cost.  "Kakahu-hakai"
(price destruction) is a word now heard and seen daily.


The "price mechanism," which used to be quite inert in Japan, is
starting to operate in line with the market principles, and is beginning
to greatly increase imports. On the other hand, although exports are
still increasing, increase of imports is remarkable and it is surpassing
the export growth. The trade surplus is thus decreasing.


As for "endaka," Malaysian Prime Minister Dr. Mahathir, whom I
personally have the opportunity to meet occasionally, told me that he
could not quite understand why Japan is still suffering from recession
while her currency, the yen is so strong that we can buy anything
cheaply from overseas. Dr. Mahathir emphasized that we should take
advantage of "strong yen" to overcome our economic recession. What Dr.
Mahathir says sounds quite convincing but I don't think things work that
way, so simply.


The Japanese economy has grown, led by the internationally competitive
huge exporting industries under which there are hundreds of medium and
small-scaled supporting industries. It would be extremely difficult to
fundamentally modify the economic structure established over a great
span of time ... and I doubt if the Japanese economy can be managed with
an import-dependent structure.


Last year, I had three visits to Canada. At UBC, which I visited in
November, I addressed my speech on the Japanese economy to the students,
their families and friends. Later, questions and statements were raised
to me, regarding whether Japan could really survive under this very
severe "endaka." Just as my Canadian friends were worrying, I myself had
once thought that the exporting industries supporting the Japanese
economy might be destroyed by the excessive endaka."


However, the Japanese exporting industries are indeed spreading their
production facilities to Asian countries and undergoing severe
re-structuring at home. On the other hand, it must be noted that the
Japanese share of the world export market is far greater than one can
imagine, and that factors such as the recovery in the world economy and
Japanese production cut-backs due to "endaka" are tightening the
demand-supply balance worldwide and causing price increases. As a
result, representative Japanese exporting industries such as steel and
shipbuilding are starting to obtain export orders for certain products.


> From this, the Japanese economy seems to be somehow overcoming "endaka,"
being supported by the favorable overseas economies... and I feel that
Japan has yet to count on the exporting industries for their role as an
economic base.


Now, this year marks the 50th anniversary of the end of the Second World
War. At the milestone of the 50th year, I think it is a very good idea
to reflect and think about the past, and to look into the future from a
long-term and global standpoint.


When we look at the world from this kind of perspective, we will be
surprised at the very big and fundamental changes that have occurred
throughout the years. We can see that up to very recently, the world has
seen an era of confrontation. The world structure was characterized by
imperialism versus colonialism; rulers versus the ruled; socialism
versus liberalism; managed economy versus market economy. With the
collapse of the Soviet Union, this confrontational structure disappeared
and currently, an era free of serious worldwide confrontation has
emerged. With respect to the economy, we are in an era in which nations
of the world compete freely, within a single system of free market
economy.


While we think about the fundamental and structural changes of the past,
we are to foresee what the changes will be during the coming ten to
twenty years. In my opinion, it would be unlikely that Japan would
remain as an economic superpower. I think the forthcoming change may put
Japan into a weak position.


Just after the war in 1946, Japan participated in the trade market with
a total yearly trade volume of 400 million dollars. Currently the
Japanese trade volume is 600 billion dollars. This is fifteen hundred
times increase from fifty years ago.


The gross domestic production (GDP) too has jumped 1,000 times from 100
billion yen of fifty years ago to the current 500 trillion yen. The
steel industry too, for example, which is a representative industry of
present Japan and with which I personally have been associated for a
long time, increased its yearly production fifty times from two million
tons to 100 million tons. As far as I am aware, right after the war the
United States, then designated as the Steel Kingdom of the World, had a
production of around 60 million tons. Its current figure of 80 to 90
million tons does not symbolize a drastic change.


Looking at currency, we also find that the value of the yen, fixed at
360 to the dollar in 1949, has undergone a drastic appreciation ever
since the floating exchange rate system was adopted in 1971. The rate of
appreciation has been unprecedented in the world, shooting up 3.5 times
to 100 Yen during the last twenty years or so.


For many years after the war, since 1946, Japan had continuously been
registering a trade deficit and the securing of foreign currency had
then been of a paramount issue. Both the industrial circle and the
government were keenly interested in how we can export more to earn
foreign currency. As a result, export promotion was strongly pursued and
the Japanese economy was transformed into an extremely export dependent
structure, as you are all aware.


Within Japan, there emerged many highly competitive corporations with
high level production technologies. These corporations naturally
competed against each other not only in the domestic market, but also in
the export market. As a result, the economic-trade structure came to
register a high trade surplus, and currently, reduction of this surplus
has become an international issue for Japan. The leading export items
have changed from textiles to steel, shipbuilding to domestic electric
appliances, and audio-visual equipments to automobiles and
semi-conductors. It must be well-noted that most of these items
experienced some kind of trade friction.


Ever since the 1985 Plaza Accord, "endaka" has been accelerated along
with the expanding trade surplus. This environmental change has indeed
provided great impact on the export-dependent Japanese economy, and
Japan is being pushed to change her economic and trade structure.


In order to maintain competitiveness, some corporations are hastening to
shift their production facilities abroad. In process industries, where
shifting abroad is difficult, as in the steel or petrochemical industry,
corporations are striving to improve production efficiency further by
undergoing severe restructuring such as review on product-mix and laying
off.


As a result, hollowing-out of domestic industries and industries and
employment problems are arising as new issues. I believe that the
extensive efforts which Japan is currently exerting towards harmonizing
with the world economy will gradually bear fruit in the future, as
exemplified by overseas translocation of facilities, restructuring of
domestic corporations, deregulation, opening up of markets, domestic
demand enhancement and import promotion.


However, even if the Japanese economy will recover after overcoming
endaka" and recession, I cannot imagine that Japan will resurrect as an
economic superpower having the same industrial structure as before, both
in quantitative and qualitative terms.


It is quite certain that goods manufacturing, which has been a Japanese
specialty for a long time, will be partly transferred to Korea and
Taiwan, to the Asian NIEs or East Asian industrializing nations. A
horizontal division of labor on an international scale will be greatly
enhanced.


I am quite confident that coordination and harmonization with the
industrializing countries will become extremely important elements to
establish a firm Japanese economic foundation in the future.


Japan has been said to lead the world, thanks to her excellent
production technology. However, in the knowledge-led industries which
call for much creativity, ideas and know-how, she is seen to lag greatly
behind North American and European countries.


Moreover, contrary to the over-dependence of economic growth on the huge
exporting industries, productivity levels of service industries,
small, and medium-sized enterprises have become comparatively low.
Consequently, a dual economic structure has resulted, where industries
highly competitive and very uncompetitive co-exist.


The existence of large price differences at home and abroad is often
cited, and it is also a very big issue indeed to annul such differences,
and to create a domestic market unified with the world market.


I have mentioned before that we Japanese are being pushed to change our
economic, trade and industrial structure. Likewise, we also face a big
and important issue as to what type of new industry our economy should
foster and depend on for the future.


I unfortunately do not have a distinct image here with me, how the new
structure should concretely look. However, I do imagine that it would be
an industrial structure which couples production technology of Japanese
expertise with creativity. For the industries which call for creativity
and new ideas, I can mention those knowledge-led and know how
industries, such as information, communication, medical, environment and
new materials industries.  How we can combine production technology with
creativity will surely be the key to the future of the Japanese economy.


I am not an economist or a university professor. What I have mentioned
up to now are my feelings and thoughts towards the Japanese economy,
which I leave acquired through daily business activities.


As I mentioned at the beginning, I am looking forward to receiving from
Canadian friends here today, lively suggestions or comments where the
Japanese economy should go, or on the structure it should assume.


---------------------------END OF REPORT---------------------------