The Sun Also Sets

By Barbara Rudolph.

The bad news just keeps coming. A leading shipbuilder announces that nearly 40% of its workers will be laid off, and those who keep their jobs will have to take 10% salary cuts and a 50% slash in their usual year-end bonuses. Thousands of steelworkers are idle, as mammoth steel furnaces stand silent. Coal mines are closing, and even some automobile assembly lines are shut down.

These could be snapshots of the American Rust Belt, but in fact the bleak pictures are from Japan. The mighty industrial power of Asia is now reeling from its worst performance in more than ten years. Layoffs, shutdowns, production cutbacks and plummeting profits have infected virtually every one of Japan's manufacturing industries. While service businesses, including banks and insurance companies, are flourishing, one in eight major manufacturers reported a loss for the six-month period that ended last September. Economists predict that Japan's gross national product will grow by just 2.3% for the fiscal year ending in March 1987, the lowest level since 1974, when GNP dropped by .4%. Even the promise of lifetime employment, a cornerstone of the country's social structure, is crumbling. Says Toshio Isago, an executive vice president at Nippon Kokan, a steel and shipbuilding conglomerate: "We have experienced hardships in the past, but nothing on this scale."

The current malaise was brought on by the exceptionally strong yen, which is now valued at 162 to the dollar, up nearly 40% since its February 1985 low. The yen has also risen against some European currencies -- 15% vs. the British pound, for example. The robust yen cuts demand for Japan's exports by making them more expensive to foreigners.

Since many Japanese firms have traditionally relied on a growing export market, the change in currency values is devastating. Last year Japan's $174 billion worth of exports accounted for more than 13% of the country's GNP. But this year exports are likely to fall. Shipments of color TV sets in October were down 49% from the same period of 1985, the third consecutive monthly drop. The Japan Automobile Manufacturers Association calculates that at an exchange rate of about 160 yen to the dollar, auto exports to North America will decline 28% in the year ending March 1987.

Still, not all Japan's troubles can be traced to the yen. Some of the country's older industries, including steel, shipbuilding and coal mining have been declining for the better part of a decade. One reason: they face fierce competition from what economists call the newly industrialized countries, like South Korea, Taiwan and Brazil. The NICs compete largely by paying lower wages. The average hourly salary of a South Korean steelworker, for example, is one-sixth the level of his Japanese counterpart.

Perhaps the most surprising sign of Japan's new hard times is the slump in the electronics industry. For the six months that ended Sept. 30, Toshiba's pretax profits plunged 80% from the same period in the previous year. At Fujitsu, Japan's top computermaker, profits fell 79%. Nihon Keizai Shimbun, Japan's leading business newspaper, last month reported that for the first time since 1975, Hitachi, Mitsubishi Electric and Fuji Electric planned temporary layoffs, shocking workers and managers in the industry. The companies denied the report, but rumors persist. Says Daisaku Kodama, an Osaka-based subcontractor for Matsushita Electric Industrial: "There have been other recessions. But this is the first time we have questioned our own survival."

The Japanese auto industry, which employs 10% of the country's work force and generates more than 20% of its exports, has driven into a similarly rough patch. For the fiscal year that ended in June, Toyota Motor, the country's largest car manufacturer, saw its profits fall 17%, to $1.6 billion. That marked Toyota's first decline in four years. For the six months that ended in September, Nissan Motor suffered a $122 million operating loss, its first since 1951. As a result, the company reassigned 2,500 employees to Nissan sales subsidiaries.

While electronics and car manufacturers have only recently stumbled, Japan's coal-mining industry has been in a long slide. Indeed, the industry may have survived only because of price supports. A government advisory panel last month recommended that domestic coal production should be slashed 38%, to 10 million tons a year, by 1991. As a result, about 11,000 of the country's 24,000 miners would lose their jobs. Says Shigeo Shigetaka, a union official at the Mitsui Sunagawa coal mine: "The proposed cut is the same as a death sentence." To protest the plan, workers at Japan's eleven major mines mounted a 24-hour strike on Nov. 13. Some 7,000 supporters marched with union flags and placards in subfreezing weather. Still, their action did not prevent last week's closure of the Takashima coal mine, the country's oldest.

Japan's steel manufacturers, who played such a vital role in the country's postwar resurgence, now find themselves besieged by foreign competition. Among the fiercest rivals are South Korean and Brazilian steelmakers. Japan's five largest producers could lose some $2.3 billion this year. In the coming years, some 40,000 workers could lose their jobs. Says Yutaka Takeda, president of Nippon Steel: "This is the worst crisis we've faced since we started making steel."

Humbled too are Japan's shipbuilders, who are suffering from a worldwide glut of shipping capacity. For the six months ending September, four of the six major Japanese manufacturers lost money for the first time since 1979. Shipbuilder Ishikawajima-Harima Heavy Industries plans to reduce its work force from 24,000 to 17,000 by year's end. One 90-year-old shipbuilder, Hakodate Dock, was once the largest employer in the city of Hakodate. Now the company has no orders at all for next year and beyond. In shipbuilding, as in steel, the most forceful challenge comes from South Korea, whose currency, unlike the yen, is pegged to the dollar. South Korea's share of world shipping is expected to climb by year's end from 10.7% to 28.4%, while Japan's portion will drop from 49% to 41%. Says Kazuichi Murai, director of planning at the Shipbuilders' Association of Japan: "It's warfare."

Japan's economic troubles threaten a precious social contract: lifetime employment. In return for loyalty to their employer, Japanese workers have come to expect that they will never be fired. (In fact, that unwritten pact has applied mainly to employees of large companies rather than those of small businesses). As layoffs become commonplace, the promise is becoming an illusion, and Japan's unemployment rate has climbed to almost 2.9%. While that is low by U.S. or West European standards, for Japan it represents a level not seen since statistics began to be compiled, in 1953.

In response to the economic slowdown, the Japanese government has recently taken steps to bolster growth. The plan was set forth last April in a report that called for Japan to restructure its economy to be less dependent on exports. The government announced in September a $23 billion economic package to stimulate growth through increased allocations for public works and housing subsidies. In late October the central Bank of Japan cut its discount rate, the interest charged on loans to commercial banks, from 3.5% to 3%. It was the fourth cut this year. Officials are now studying tax reforms to spark consumer spending. Says James Vestal, senior economist with Britain's Baring Securities: "The government will facilitate change, and it will be a rocky road."

Japanese manufacturers, for their part, are maneuvering to meet the challenges that have been posed by a strong yen and weakening exports. Companies are increasingly purchasing parts from low-cost foreign suppliers or & moving production to such cheap-labor countries as South Korea, Singapore and Taiwan. Many manufacturers are opening plants in the U.S., in part to avoid restraints imposed on imports.

Still, Japan can be optimistic about its economic future. The country has proved time and again that it can overcome adversity: it speedily recovered from the 1973 OPEC oil shock, even though it imports virtually all its energy supplies. And, of course, the economy was all but re-created after World War II. Says Kazuo Sano, president of Sano Manufacturing, a maker of audio parts: "I can't believe Japan won't come through this one. This is a time for great patience while we wait for the answer." While searching for the answer, Sano and his countrymen may have to go through the same kind of wrenching transition that Japanese competition has already forced upon American and European industries.

With reporting by Neil Gross and Yukinori Ishikawa/ Tokyo