Wall $treet Week with Louis Rukeyser; No. 2248; In Japan

<v Speaker>Wall Street Week with Lewis Rukeyser <v Speaker>is made possible by the Corporation for Public Broadcasting and by the annual <v Speaker>financial support from viewers like you by the Travelers. <v Speaker>Over 30 million Americans benefit from our insurance investment services and managed <v Speaker>health care. The Travelers, America's umbrella by M.F.S. <v Speaker>M.F.S helping mutual fund and institutional investors achieve their financial goals <v Speaker>since 1924. <v Speaker>And by Prudential Securities. <v Speaker>We believe the most important thing we earn is your trust, Prudential Securities. <v Speaker>From Tokyo, produced Friday, May 28. <v Speaker>For the first time in 23 years, I'm going to open this program by saying <v Speaker>not good evening, but good morning. <v Speaker>I'm Lewis Rukeyser. This is Wall Street Week. <v Speaker>Welcome back. Why good morning? <v Speaker>Because we're coming to you this week from Tokyo, where it already is morning,

<v Speaker>Saturday morning, May 29th. <v Speaker>So if you've ever fantasized about how successful you could be, if you only <v Speaker>knew tomorrow's news today, stay tuned, because <v Speaker>we know. <v Speaker>We're here for a very simple and practical reason. <v Speaker>It's just a good old fashioned business practice every now and then to go calling <v Speaker>on your creditors and to say hello to your money. <v Speaker>In more ways than one these days, Japan seems to be at least a day ahead of us. <v Speaker>And if we Americans don't obtain a deeper understanding of what is really going on <v Speaker>and what is now the world's second biggest economy, we may be heading for a <v Speaker>dramatically unhappy awakening. <v Speaker>And this week has given a host of timely demonstrations of Japan's extraordinary economic <v Speaker>power. We had, for example, the official report that Japan is again <v Speaker>the world's largest net creditor, owed more than half a trillion <v Speaker>dollars by foreigners.

<v Speaker>The American dollar repeatedly dived to new postwar lows against the <v Speaker>Japanese yen. Fast approaching the once unthinkable level of <v Speaker>100 yen to the dollar. <v Speaker>And one Japanese financier confided to me that the next logical step <v Speaker>would be to revalue knocking off the last two zeros so that 1 <v Speaker>yen would equal and perhaps even exceed $1. <v Speaker>Never mind that many economists seriously question the wisdom of a succession of <v Speaker>our own governments whooping the yen higher and the dollar lower while beating <v Speaker>on the Japanese to open their markets wider. <v Speaker>Even the occasional sign of Japanese weakness, such as what passes for a recession <v Speaker>in this normally rocket paced economy, has scarcely served American interests. <v Speaker>On the contrary, it merely diminished Japan's ability to buy our exports <v Speaker>and thereby enlarge the world's most enormous trade surplus. <v Speaker>Nearly half of it achieved against the US alone.

<v Speaker>No wonder things occasionally get a bit testy between our two countries. <v Speaker>With Americans viewing Japan as insular, protectionist, and hostile to <v Speaker>U.S. goods and the Japanese regarding us as world class <v Speaker>crybabies, perennially seeking a scapegoat for our own continuing <v Speaker>failure to get our economic act together. <v Speaker>Not even the joy of seeing a nice Harvard girl named Masako Owada <v Speaker>become Crown Princess on June 9th can silence this discord <v Speaker>behind the jubilant temple bells. <v Speaker>In this program, we're going to delve beyond the stereotypes on both sides of the Pacific <v Speaker>to see what is changing and what is not. <v Speaker>In hope of keeping you and your finances ahead of the curve for many at tomorrow <v Speaker>in the land of the rising yen. <v Speaker>But first, let's check out what happened in Wall Street in the week just passed. <v Speaker>The Dow Jones Industrial Average ignored the prevailing media and analysts' pessimism by <v Speaker>marching to 2 more records. And we're standing pre-holiday profit taking to close

<v Speaker>with a gain of about 34 and a half points at 3527.43. <v Speaker>And the broader indexes all had a good week, too. <v Speaker>The market's wide strength in the face of excessive negativism convinced Chief Elf Ralph <v Speaker>?Alcampora? to upgrade from neutral to bullish raising the Elves Index <v Speaker>Technical Consensus to plus 3. <v Speaker>The turmoil in Washington, combined with anemic economic reports, caused some <v Speaker>late week jitters, but left bonds slightly ahead and precious metals virtually <v Speaker>unchanged. But the biggest U.S. <v Speaker>financial story was right here in Tokyo, where the yen steamroller brushed aside <v Speaker>some belated second thoughts in Washington. <v Speaker>And the battered dollar now buys fewer than 107 yen. <v Speaker>In the immortal words of Mrs Willy Loman, attention must be paid. <v Speaker>So now let's take a deeper look beyond the nationalist emotions and political oratory on <v Speaker>both sides to help us understand what really lies behind today's strained relations <v Speaker>between Japan and the United States.

<v Speaker>[singing] [bells ring] <v Speaker>Almost everything in modern Japan is a sometimes uneasy blend of the past <v Speaker>and the future. Ancient traditions pervade life in ways often <v Speaker>foreign to the American spirit. <v Speaker>Part of the reason is simple longevity. <v Speaker>When European settlers first set foot on what is now the United States, <v Speaker>Japanese society had already been in place for more than a thousand years. <v Speaker>Elements of this Tokyo ceremony have been performed since the year 552 <v Speaker>when Buddhism first arrived from China. <v Speaker>But reverence for the ways of yesterday has not kept the Japanese from adapting <v Speaker>with remarkable shrewdness to the world of tomorrow. <v Speaker>These are the more familiar images of modern Japan. <v Speaker>Factory after factory, turning out quality products with military precision

<v Speaker>products that are bound for the driveways, homes, and offices of millions <v Speaker>of Americans. The big names of Japanese industry have become part of the <v Speaker>fabric of American life. <v Speaker>The reverse is conspicuously not true. <v Speaker>Here in Tokyo's electronics center, American products are almost invisible. <v Speaker>You won't find a Hoover or an Electrolux here. <v Speaker>Last year alone, Americans spent almost 50 billion dollars more on <v Speaker>Japanese products than the Japanese spent on ours. <v Speaker>When did this pattern begin? <v Speaker>And what truly has caused this enormous disparity? <v Speaker>Some of the answers may surprise you. [music plays] <v Speaker>August 1945. [bomb crashes] <v Speaker>Hundreds of years of Japanese military imperialism end in a single week, <v Speaker>Hiroshima and Nagasaki are vaporized by atomic bombs.

<v Speaker>Tokyo, though spared from nuclear attack, is reduced to rubble. <v Speaker>The Japanese surrender, and within a month, American troops occupied Japan. <v Speaker>At American insistence, Japan renounces war and agrees <v Speaker>to a clause in its new constitution, prohibiting any involvement <v Speaker>in future military conflicts. <v Speaker>Japan's economic recovery begins slowly. <v Speaker>But then in 1950, a new war erupts. <v Speaker>[shooting] <v Speaker>The Korean War and Japan's nearest neighbor is torn apart. <v Speaker>The United States, always eager to disarm at the first sign of peace, <v Speaker>is caught off guard. The need for military hardware in Korea <v Speaker>is sudden and urgent. <v Speaker>And so the U.S. Department of Defense orders thousands of trucks from <v Speaker>a small, nearly bankrupt Japanese company. <v Speaker>Its name is Toyota.

<v Speaker>And the industrial resurgence of Japan begins. <v Speaker>For now, with the Korean War, America confronted a new world enemy. <v Speaker>The Cold War focused our attention on the astonishing rise of Soviet military strength, <v Speaker>and U.S. foreign policy became dictated almost entirely by the need <v Speaker>to counter the threat from Moscow. <v Speaker>Japan, the old enemy, now became crucial to the new American strategy. <v Speaker>Japan's geographical position was perfect for blocking the Soviet fleet <v Speaker>based in Vladivostok from dominating the Pacific. <v Speaker>Japan, a dreaded foe just a few years before, quickly became a trusted <v Speaker>ally. In 1960, the Tokyo government granted the U.S. <v Speaker>the right to establish permanent military bases on Japanese soil. <v Speaker>As a result, the Japanese archipelago became in effect an unsinkable <v Speaker>Pacific fleet for the U.S. <v Speaker>and the Soviet threat to the Pacific was effectively neutralized.

<v Speaker>In 1961, the Japanese built this, the Shinkansen, now <v Speaker>the world famous bullet train. <v Speaker>Right now, we're traveling at 140 miles an hour. <v Speaker>And as you can see, the ride is safe and comfortable. <v Speaker>The bullet train quickly became a streamlined symbol of Japan's rebirth. <v Speaker>And if this nation's knack for applying the most modern technology in highly <v Speaker>practical ways. <v Speaker>While the U.S. was rearming, Japan was rebuilding. <v Speaker>Japanese goods, once thought of as shoddy and imitative, soon developed <v Speaker>a worldwide reputation for quality manufacturing. <v Speaker>Americans began buying up Japanese products by the boatload, <v Speaker>and Washington encouraged this industrial growth in Japan. <v Speaker>Even after the balance of trade shifted dramatically in Japan's favor. <v Speaker>Minor economic discomfort was viewed as a small price <v Speaker>to pay for such a valuable security alliance.

<v Speaker>But all that is over now, particularly since the Soviet Union is no more. <v Speaker>President Clinton's message to Tokyo has been, it's the economy, Miyazawa-San. <v Speaker>Not surprisingly, this change has not sat well with traditionalist Japan. <v Speaker>[birds chirping] <v Speaker>This is the heart of Japanese tradition. <v Speaker>Kyoto, Japan's ancient capital and one of the bullet train's original <v Speaker>destinations. The city is a picture postcard excursion to the past, <v Speaker>recalling with breathtaking loveliness, the Japan of old. <v Speaker>Graceful, serene, and orderly. <v Speaker>A nation and a people secure and their heritage and completely isolated <v Speaker>from the rest of civilization. <v Speaker>The isolation has vanished with the Shoguns. <v Speaker>In today's Japan, the economy is heavily dependent on export markets. <v Speaker>Most importantly, the American market. <v Speaker>There simply isn't enough consumer demand here to support the growth on which

<v Speaker>Japanese companies depend. <v Speaker>In fact, one of the most striking economic facts about Japan today is the contrast <v Speaker>between the continuing growth of the nation's giant corporations and the surprisingly <v Speaker>modest standard of living of the average Japanese. <v Speaker>Meet ?Kaoru Mori?. <v Speaker>He's 40 years old and is the Assistant General Manager of Foreign Exchange <v Speaker>for the Sakura Bank, where he has worked for 17 years. <v Speaker>Mori-San is what the Japanese call a salary man, though at current <v Speaker>exchange rates he earns the equivalent of 127,000 dollars <v Speaker>a year. But his daily regimen is notably short on what Americans would <v Speaker>consider the good life. <v Speaker>Each day he spends almost 3 hours commuting to and from Chiba, <v Speaker>a suburb of Tokyo. <v Speaker>After about a mile of walking, 2 crowded trains, and a bus ride, <v Speaker>Mori is finally home.

<v Speaker>He and his wife Atsuko bought their 950 square foot apartment a year <v Speaker>ago for 450,000 dollars. <v Speaker>On Saturday, while their two sons are in school, we go with <v Speaker>?Kaoru? and Atsuko as they look at some larger houses. <v Speaker>They can almost afford to buy one like this. <v Speaker>That is, if they already owned the land. <v Speaker>A lot, just large enough to build this home outside of Tokyo would cost at <v Speaker>least 1,500,000 dollars. <v Speaker>The problem is this house is expensive and the land is expensive in Japan altogether. <v Speaker>It's too much. <v Speaker>Land is so precious here that even Japan's economic elite live <v Speaker>modestly by American standards. <v Speaker>This is Dr. ?Mitchee Uki Wenohara?. <v Speaker>He is a prestigious figure in Japanese industry, executive advisor to ?any <v Speaker>C? Corporation where he has enjoyed a long and successful career. <v Speaker>He earns the equivalent of 250,000 dollars a year.

<v Speaker>Even so, Dr ?Wenohara? says the only reason he can afford to live in Tokyo <v Speaker>is because his wife's parents allowed him to build his home in their <v Speaker>backyard. <v Speaker>You cannot do anything about it because land is s-s-so limited. <v Speaker>One regular indulgence that many Japanese do allow themselves is this. <v Speaker>Sushi. A cuisine that has lately become one of the most popular Japanese exports <v Speaker>to the US. To many Americans, munching their mackerel and <v Speaker>savoring their sea urchin, this is the quintessence of things Japanese. <v Speaker>But there are economic surprises here, too. <v Speaker>[bell rings] [man shouting in Japanese] <v Speaker>Every year, Japan imports half a million tons of fish from, <v Speaker>of all places, the United States. <v Speaker>[man shouting in Japanese] <v Speaker>So American products are not exactly unknown here, nor do you have to sell

<v Speaker>fish to tip the import scales, in Japan. <v Speaker>Truth is young Japanese are remarkably drawn to American music, movies, <v Speaker>and fast food. American pop culture is big business in Japan. <v Speaker>In fact, the Coca-Cola Company makes even more money in Japan <v Speaker>than it does in the United States. <v Speaker>And oh, yes, there is one more huge American success story in Japan that <v Speaker>you should know about. He is Chad Rowen, known here as the sumo <v Speaker>wrestler, Akebono. <v Speaker>Born in Hawaii, Rowen is the first non-Japanese ever to reach <v Speaker>an exalted sumo rank of Yokozuna, grand champion. <v Speaker>And grand he undeniably is. <v Speaker>6 foot 7 and 473 pounds at last weigh-in. <v Speaker>In a land where direct confrontation is usually avoided, at least one American <v Speaker>has made it big by throwing his weight around.

<v Speaker>But the recently heightened American attempt to apply that muscular tactic to trade <v Speaker>policy has many Japanese politicians and business executives bridling. <v Speaker>I spoke with Kazuo Nukazawa, Managing Director of Keidanren, <v Speaker>the most powerful consolidated voice of Japanese industry. <v Speaker>Mr. Nukazawa, the Clinton administration is convinced <v Speaker>that previous American trade policy toward Japan simply hasn't been <v Speaker>tough enough. Do you see any merit in this position? <v Speaker>Well, do you ?inaudible? Mr. Clinton is ranking the trade <v Speaker>policy or trade negotiations with the balance of payments too closely. <v Speaker>The balance of payments is a result of the macroeconomic policy, exchange <v Speaker>rate uh changes, uh inflation rate, etc. <v Speaker>But the macroeconomic uh management is the most important factor on <v Speaker>um t-trade surplus. Probably he's misled by wrong economics.

<v Speaker>That's it. That is my impression. <v Speaker>Leaving aside the question of whether the U.S. <v Speaker>government is proceeding intelligently or foolishly, wouldn't the Japanese consumer <v Speaker>benefit if the market were more open to American goods? <v Speaker>Yeah, that is completely true. <v Speaker>But what I am saying is that the ?linking? <v Speaker>That the structural factor with the balance of payment is totally wrong. <v Speaker>One U.S. government official said this week that part of Japan's problem is the <v Speaker>government's not spending enough. Well, we're pretty good at that in America. <v Speaker>Is that your problem in Japan, that you're not spending enough? <v Speaker>Well, the Japanese government is indebted uh uh as much as 1.5 trillion <v Speaker>dollars already and they are leaving the the debt to our posterity. <v Speaker>Is that really enough? <v Speaker>Why, after all these years, is there so much continuing friction between <v Speaker>the US and Japan on trade matters? <v Speaker>Well, the the any uh 2 rival nations <v Speaker>in the economy competing against each other uh, will have frictions.

<v Speaker>In your view, is the United States making the Japan, Japan a scapegoat for <v Speaker>the failure of American workers and businesses? <v Speaker>Hmm, there is uh that factor. <v Speaker>Um, but the the the United States corporations <v Speaker>are firing uh workers and per capita production is <v Speaker>going up. The productivity, therefore, is going up. <v Speaker>The American companies are getting to be more competitive compared <v Speaker>with one year ago, two years ago. <v Speaker>What would be your message to American workers <v Speaker>angry at their failure to sell more goods in Japan? <v Speaker>Well, they are selling more goods in to Japan compared with 10 years ago, 5 years ago. <v Speaker>The growth of American exports to Japan is higher than uh <v Speaker>most of uh your exports to Europe. <v Speaker>You know, we are buying more American goods than you are sending to 3 <v Speaker>European countries combined.

<v Speaker>What do American companies or American governments have to do to <v Speaker>accelerate that trend? <v Speaker>Well, they they are on the right track. <v Speaker>They are increasing uh the corporate productivity <v Speaker>and they are improving upon their way of uh <v Speaker>trading. I want them to uh work more on this and more <v Speaker>and watch more Japanese TV and listen to Japanese <v Speaker>uh radio and acquire the sense of the society. <v Speaker>Thank you very much, Mr. Nukazawa. <v Speaker>Can we make a buck or even a yen out of the sense of that society? <v Speaker>With me now is Kimisato Nagamine, who has been covering Asian financial <v Speaker>affairs since 1965 from vantage points in Hong Kong and Tokyo <v Speaker>and who runs the Japanese operations of Baring Asset Management. <v Speaker>?Naga? after falling more than 63 percent from its 1989 high, <v Speaker>the Nikkei average has now risen nearly 46 percent in 9 months.

<v Speaker>Yep. <v Speaker>Where do you think it's going from here? <v Speaker>?Well, I think? the Dow Jones will go up farther <v Speaker>?another? 6 months, at least until we see the more, well, <v Speaker>conservative sign on the recovery, on the economy, as well as corporate earnings. <v Speaker>However, year end, I'm targeting my year end of Dow Jones <v Speaker>at 22,500 sort of level. <v Speaker>So it's just a little- little bit higher, maybe 10 percent higher? <v Speaker>Yes, 10 percent higher. Yeah. But we might see some sort of a setback in the middle of <v Speaker>August. <v Speaker>What are your favorite Japanese stocks now for Dubai? <v Speaker>Well, currently, the my favorite stock is they came in a company called <v Speaker>Olympus ?Optical?, 80 percent of their business, well uh, is coming from the American <v Speaker>government and uh 50 percent of the earnings is coming from the ?American <v Speaker>government? as well. And we have got a couple of ?themes? <v Speaker>in the Tokyo market. Well, new infrastructure, as well as medical infrastructure, <v Speaker>and medical infrastructure is well behind the ?United States?, and uh

<v Speaker>we are looking for a couple of Medicare. <v Speaker>So the stocks, the most of the stocks, are frightfully expensive, but this one <v Speaker>is still 28 times. <v Speaker>I mentioned that you also spent a lot of time in Hong Kong. <v Speaker>China was officially recognized this month as the world's third biggest economy. <v Speaker>Yes. <v Speaker>What do you think of investments there? <v Speaker>We are, even I personally, am most bullish in China. <v Speaker>Well, well, because ?I mean, for reasons?. <v Speaker>The second uh largest military power and uh relatively still <v Speaker>cheap labor and abundant labor force and also the, well, natural <v Speaker>resources. I mean, they are very rich and into growing sort of <v Speaker>into a region's economy. <v Speaker>Can foreigner really invest there in Chinese stocks? <v Speaker>How do you do it? <v Speaker>?Yes, it is. It is a continuous? problem, except you go to Hong Kong. <v Speaker>However, uh well, uh Shanghai, <v Speaker>we are a member of Shanghai Stock Exchange already, but well, that has a continously

<v Speaker>?inaudible? problem. That might be well, I mean, sorted out after 1994. <v Speaker>You mentioned a stock you like here in Japan, Olympus. <v Speaker>How about the big names that we all know? The Panasonics, the Hitachis, the Toshibas. <v Speaker>What do you think of them? <v Speaker>I'm afraid I'm a well, I'm very, very ?bearish? <v Speaker>on those 3 companies. <v Speaker>And I am putting those 3 companies as similar to IBM <v Speaker>in the United States and IBM, actually, well, ?inaudible? <v Speaker>accounted 83 percent of the Tokyo market in 1960, <v Speaker>but now IBM is the 1 percent of Toyko Stock Exchange. <v Speaker>You think these companies have fallen behind the markets? <v Speaker>Falling behind their-? <v Speaker>Yes, of course, already. <v Speaker>A-and you think that the future belongs to smaller companies in Japan? <v Speaker>Yes, smaller companies or wherever we could see growth, we should <v Speaker>go. That is small and medium size companies. <v Speaker>If you had one sentence to say to Americans about the outlook for Japanese stocks,

<v Speaker>what would it be? <v Speaker>Well uh, I mean, I wouldn't recommend another 6 months. <v Speaker>Not for the next 6, ?another? 6 months? <v Speaker>Yes. <v Speaker>Thank you very much, Kimisato Nagamine. <v Speaker>?Not at all?. Nice to see you. <v Speaker>Whatever happens next in the frenetic Japanese stock market, the Japanese economy <v Speaker>is not about to lie down and roll over. <v Speaker>Last year alone, Japan accounted for fully 49 billion dollars of <v Speaker>the 84 billion U.S. trade deficit. <v Speaker>And while American products and productivity are indeed unmistakably improving, <v Speaker>and while U.S. diplomats, if that is the word, will continue to use <v Speaker>every available tactic to pry open Japanese markets, the suspicion <v Speaker>in this corner is that our most formidable weapon may have to be forged in Japan <v Speaker>itself. When and if the Japanese consumers, including the salarymen <v Speaker>and those still condescendingly referred to as office ladies, <v Speaker>rise up and demand the better standard of living to which Japan's wealth entitles

<v Speaker>them and which freer trade could help provide, they may prove <v Speaker>the most revolutionary force of all. <v Speaker>Improbable? Maybe, but who would have predicted 2 generations ago <v Speaker>that Japan would be a thriving, stable democracy, populated by some <v Speaker>of the most successful capitalists on any continent? <v Speaker>And who would have predicted, even one generation ago, that Japanese workers would now <v Speaker>overwhelmingly be taking and enjoying a full two-day weekend <v Speaker>and delightedly discovering myriad other attractions of unaccustomed <v Speaker>leisure? Some dawn not too far distant, the average Japanese <v Speaker>may once again awaken and surprise not only the world, <v Speaker>but Japan itself. <v Speaker>We'll be back home next week and I'll be talking with a ?cracked? <v Speaker>American stock picker named Christine Liseck Pinto. <v Speaker>Meanwhile, from Tokyo, this ?has been? <v Speaker>Wall Street Week. I'm Lewis Rukeyser. Sayonara. <v Speaker>Wall Street

<v Speaker>Week with Lewis Rukeyser has been made possible by the Corporation for Public <v Speaker>Broadcasting and by the annual financial support from viewers like you. <v Speaker>By The Travelers, providing American business with insurance, investment services, and <v Speaker>managed health care. The Travelers, America's Umbrella. <v Speaker>By M.F.S., M.F.S. <v Speaker>helping mutual fund and institutional investors achieve their financial goals since <v Speaker>1924. <v Speaker>And by Prudential Securities, we believe the most important thing we earn is <v Speaker>your trust. Prudential Securities. <v Speaker>For a printed transcript of this program, send $5 to Transcripts. <v Speaker>Wall Street Week with Lewis Rukeyser, Owings Mills, Maryland 2 1 1 1 7. <v Speaker>Transcripts are also available to subscribers of the Dow Jones News Retrieval Service. <v Speaker>[music plays]. <v Speaker>Wall Street Week with Lewis Rukeyser is produced

<v Speaker>by Maryland Public Television, which is solely responsible for its content. <v Speaker>[music plays] This is PBS.