U.S.-Japan Investing

Summary transcript of program broadcast August 4, 1999

Subject: "Japan's Present Economic Situation"

Host, Dr. Dennis Laurie and guest, Takahiro Miyao, Professor, University of Southern California, and GLOCOM, International University of Japan

Laurie: Please begin by sketching the current state of the Japanese economy.

Miyao: These days data after data suggest a surprisingly strong recovery in terms of cyclical factors such as industrial output, computer sales, housing construction, etc., all up compared to last year. But I think some fundamental, structural problems are still remaining such as the excess debt problem in corporate balance sheets and also in the household sector. Corporations are cutting down on investment and employment, and the unemployment rate is rising and as a result consumption is discouraged. So the picture is mixed.

Laurie: One positive sign is that the Nikkei index is up some 25-30 percent over a year or so ago. Another factor that heavily impacts the Japanese economy is the health and vibrancy of the Asian economies, which seem to be getting themselves back on their feet.

Miyao: Lately the Nikkei average went over 18,000 yen and that must have been a little bit of over reaction, but overall the market has responded positively to the good news about the recovery of the Japanese economy. Also Japan has been helped by the stronger-than-expected recovery of some of the Asian countries such as Korea showing 4-5 percent growth performance this year compared to the negative growth last year.

Laurie: Looking at specific industries in Japan, the auto industry is starting to show some very positive and aggressive restructuring.

Miyao: That's right. The auto industry is a very interesting case where real restructuring is taking place while in other industries it's just across-the-board cutting, not real restructuring. For example, Nissan has just decided to sell its stake in cellular phone business to Nippon Telecom, while acquiring Mazda's stake in auto transmission. That is real restructuring.

Laurie: Renault's management was instrumental in that move, wasn't it?

Miyao: Exactly. Nissan got help from the foreign manager to make hard decisions for restructuring --that is what's lacking in Japanese management.

So far Japanese-style restructuring is across-the-board cutting on investment and employment, but real restructuring involves real hard decisions as to which divisions should go and which divisions to acquire. That's where American companies, managers and investors can help the Japanese make such decisions.

Laurie: Ten years ago, everybody thought that clearly the Japanese management model was superior to the American management model, and now it has entirely reversed itself. Why is that?

Miyao: Because right now is a revolutionary time, as we have new technology coming to the market in the area of information, telecommunications, etc.

In this revolutionary time, I think American management is much superior to Japanese management in adapting to the new environment. So, in the telecommunications area, British Telecom and AT&T are now breaking into the market to change the whole landscape of the Japanese telecom industry, and Nortel is helping local communities and governments set up information network systems over there.

Laurie: The Internet Japan has been several years behind the U.S. That's starting to change pretty rapidly, isn't it.

Miyao: Yes, I think it is changing rapidly, because now the Japanese people are using the Internet not only at work but also at home. And cellular phones are instrumental in connecting people, particularly young people to the Internet. Now 44 million units of cellular phones have been sold in Japan, and one of three Japanese have cellular phones. That is a revolution and many business opportunities are there.

Laurie: Talking about opportunities, the Japanese are now altering their accounting standards, 401k pension plans, outsourcing, etc. All of this combines to render some opportunities for Americans now.

Miyao: Exactly. I think that things are changing rapidly in Japan due to changing laws and regulations in pension plans, accounting systems, etc. Also I would mention the PFI (Private Finance Initiative) law which has just passed, so that local governments can outsource their activities to the private sector.

Laurie: Prime Minister Obuchi is very popular. Is he doing a good job?

Miyao: Well, he is trying, trying hard, and the Japanese appreciate that. But the results are yet to come in.

Laurie: Can Americans be part of these revolutionary restructuring changes going on in Japan?

Miyao: Yes, American companies, investors, and individuals can now go to Japan to help Japan restructure and reform itself. And you can see various things going on in Japan at the following GLOCOM websites; http://www.glocom.ac.jp and http://vox.glocom.ac.jp (which is now moved to http://www.glocom.org/).