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No. 20 — May 19, 2000

Feature Article

CORPORATE JAPAN'S RESTRUCTURING EFFORTS: A PROGRESS REPORT

Douglas Ostrom

Summary

Few analysts would dispute the statement that the Japanese economy hit a wall in the 1990s. Experts have offered a plethora of suggestions for getting the world's second-biggest economy moving. At least publicly, Tokyo has embraced the recommendation that the government and the private sector restructure to improve efficiency. For corporate Japan, such an overhaul also would boost competitiveness and profitability.

Although the concept is somewhat unclear, corporate restructuring often is described by referencing the frequently painful process by which U.S. companies since the 1980s have reduced employment, shuttered plants and sold divisions — in the successful cases, emerging more profitable and even back on a growth track. Few if any Japanese companies, Nissan Motor Co., Ltd. included, have been nearly as bold, or as reckless, as their American counterparts.

Japanese corporate restructuring presents a sobering picture when viewed through the prism of economic and financial data. Restructuring that is extensive enough to boost growth should be obvious in altered relationships between output and labor or capital inputs, yet the evidence suggests that little has changed. While this negative finding may be a consequence of the business cycle skewing results, it also is disturbingly consistent with the less-than-radical actions undertaken to date by individual Japanese firms.

Restructuring remains controversial both in Japan and in the United States. Without it, however, Japan's economy is likely to be relegated to sluggish growth. While such an outcome would disappoint overseas policymakers and suppliers, it would represent a choice in favor of the slow change and the preservation of existing relationships that most Japanese find preferable.

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Weekly Review

FOREIGN MINISTRY BLUE BOOK EMPHASIZES NGOS, NORTH KOREAN MISSILE THREAT
--- by Barbara Wanner

The havoc caused by nongovernmental and civic groups at the November 1999 World Trade Organization meetings in Seattle and their highly visible — albeit less disruptive — protests at the mid-April confabs of the International Monetary Fund and the World Bank in Washington apparently made a strong impression on foreign policy planners in Tokyo. The Ministry of Foreign Affairs' diplomatic blue book for 2000, released May 9, highlights NGOs' increasingly important role in bringing a wide variety of problems to the attention of the international community. The government therefore must build "constructive partnerships" with these groups to meet emerging diplomatic challenges, the Foreign Ministry document emphasizes.

 

EAST ASIA ESTABLISHES CURRENCY-SWAP ARRANGEMENT TO GUARD AGAINST FINANCIAL CRISES
--- by Marc Castellano

Finance ministers from the 10-member Association of Southeast Asian Nations, the People's Republic of China, Japan and South Korea have agreed to set up a regional financing facility. It will expand an Asean currency-swap arrangement that is designed to help prevent regional economic crises. Convening under the "Asean+3" framework, officials achieved this consensus on the sidelines of the May 6-8 annual meetings of the board of governors of the Asian Development Bank in Chiang Mai, Thailand.

 

YEN SLUMPS AMID ECONOMIC UNCERTAINTY
--- by Douglas Ostrom

Almost unnoticed, the yen has been sinking. As recently as April, Tokyo, fretting that the currency's strength would undermine the fragile recovery of the world's second-largest economy, apparently bought billions of dollars in an effort to stem the yen's run-up in value. Now, however, the movement is in the opposite direction. From a daily high of ¥102.8=$1.00 in April, the yen has lost ground, briefly sinking below ¥110=$1.00 in mid-May before settling around ¥109=$1.00.

 

NOTES

The Diet's lower house approved May 11 the final component of a three-part package to help corporate Japan with the restructuring needed to regain global competitiveness (see JEI Report No. 20A, May 19, 2000). The bills, which are expected to clear the upper chamber before the scheduled June 17 close of the current legislative session, will make it easier for companies to spin off unprofitable divisions. They also will fill a void in the Commercial Code, which lacks rules governing corporate breakups. While executives welcome the coming changes, they point out that important details remain undecided.

For years, foreign observers viewed Japan's communications market as huge but isolated. The postwar domination of domestic communications services by Nippon Telegraph and Telephone Corp. — first as a monopoly and now as a 59 percent government-owned company — historically was a disincentive for foreign firms to enter the market. Since Tokyo has deregulated many aspects of the common carrier business, however, both Japanese and nondomestic firms increasingly are willing to go head to head with the giant. Last year, Great Britain's Cable & Wireless Plc, for example, won control of a competing Japanese carrier after a costly bidding war against NTT (see JEI Report No. 24B, June 25, 1999).

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