Japan "Let Us Shake Hands"

By Nancy R. Gibbs

From the facade of the normally austere 17-story Ministry of International Trade and Industry in the heart of Tokyo dangled a huge white banner last week. In bold calligraphy it exhorted passersby: LET US SHAKE HANDS WITH NATIONS OF THE WORLD BY IMPORTING MORE GOODS. In his 13th-floor office, Hiroshi Sugiyama, head of MITI's Bureau of Industrial Policies, echoed the spirit of the banner. "To Japan," he said, "the economic priority is not kyoso ((competition)) but kyocho ((conciliation)) with the rest of the world."

This from the government whose rallying cry has long been "Export or Die" ? Does this mean that Japan, the world's most fearsome economic competitor, is ready to roll down its sleeves and relax while its rivals carve up its slice of the global market? Not exactly. But Japan, under pressure to reduce a trade surplus that reached $83 billion last year, is indeed trying to soothe foreign critics by curbing exports and opening its markets to imported goods.

The trade turnaround was a long time coming, but there are finally some signs of change. Between 1982 and 1986, the value of Japanese exports jumped from $138 billion to $211 billion, partly because of the yen's 50% rise against the dollar. In 1986 alone, Japan's trade surplus rose 79% from the previous year. But last spring it began to come down. By July the surplus was nearly 15% lower than the same month the year before. Meanwhile imports, spurred by growing domestic demand for ever cheaper foreign goods, were up 30% in August, compared with that month of 1986.

The adjustment has not been easy. In such basic industries as shipbuilding, textiles and small electronics, Japan began losing customers to South Korea, Taiwan, Hong Kong and Singapore. Many Japanese firms had to cut production and sacrifice profits to remain competitive. Mazda, for example, saw its net earnings drop 77% in the six months ending April 30, compared with the same period a year earlier, as it struggled to keep its car prices down in the U.S.

The yen crisis forced manufacturers to change tactics. To reap the benefits of lower wages along the Pacific Rim, many Japanese firms built new factories offshore. Matsushita, the world's largest consumer electronics manufacturer, makes motors in Malaysia, batteries in Indonesia and facsimile machines in Singapore. Sony plans to move one-third of its production out of Japan by 1990.

Japan's automakers, which voluntarily limit exports to the U.S. to 2.3 million cars a year, are rapidly shifting production to American shores in hopes of dousing the protectionist sentiments that continue to simmer in the U.S. Congress. Many firms are finding an added benefit: it is now cheaper to build cars in Ohio than in Osaka. By the early 1990s, at least 14 Japanese plants in the U.S. could be turning out 2 million cars a year.

While traditional exports are under pressure, the Japanese are busily trying to develop entirely new markets. The government of Prime Minister Yasuhiro Nakasone has offered its blessing -- and a sizable chunk of its budget -- to firms that are moving into such high-tech fields as supercomputers, biotechnology, lasers, aerospace and artificial intelligence. At MITI's Electrotechnical Laboratory in Tsukuba Science City, 37 miles northeast of | Tokyo, scientists are building exotic robots that, among other uses, have proved handy for entertaining foreign guests. British Prime Minister Margaret Thatcher, for one, enjoyed a game of catch with the lab's artificial hand.

MITI also runs the celebrated Institute for New Generation Computer Technology, which has an annual budget of $38.8 million. Scientists there are designing a new generation of supercomputers that will allow users to give orders in English or Japanese rather than in a computer language. Such systems could be used as office secretaries, teachers' aides, automatic nursing systems or translators. Another field in which the Japanese are coming on strong is finance. Their trade surplus, combined with a high personal-savings rate, has provided the Japanese with a huge pool of cash to spread around the world. That has given enormous muscle to Japan's financial institutions. Four of the world's top securities firms and seven of the ten largest commercial banks are now Japanese, and they are moving in a big way onto the American monetary scene. Last year Sumitomo Bank paid $500 million for 12.5% of the Goldman, Sachs investment firm. In March Nippon Life Insurance bought 13% of the Shearson Lehman Bros. brokerage house for $538 million. Just last week ailing BankAmerica confirmed it will sell $350 million worth of securities to Japanese financial companies.

As their stock of money grows, the Japanese are at last showing tentative signs of being a little more self-indulgent. An $11 billion income tax cut this year, shorter working hours and rising incomes have increased demand for items as diverse as bread-baking machines, self-stirring saucepans, oversize TVs and imported cars. Even things "made in the U.S.A." are becoming more popular -- though not as fast as many American producers would like. Notes MITI's Sugiyama: "We're still trying hard to add to our shopping list something other than jets and computers from the U.S."

The past two years have demonstrated to Japan the perils of heavy dependence on foreign markets. But if the country's manufacturers started producing more goods for domestic consumption and less for export, the imbalances that have wrenched the/ economy could diminish. At the same time, the standard of living for many Japanese could improve considerably -- as would relations with Japan's competitors abroad.

CHART: TEXT NOT AVAILABLE

CREDIT: TIME Charts by Cynthia Davis

CAPTION: JAPANESE EXPORTS In billions of dollars

DESCRIPTION: Shows exports from Japan, 1980-1986; color illustrations show camera, television set and automobile.

With reporting by S. Chang/Tokyo