Japan's steel industry long has been seen as an exemplar of Japanese industrial competitiveness. Government, particularly the Ministry of International Trade and Industry, as well as industry clearly championed steel production in the early postwar years, ostensibly as a way to promote rapid aggregate economic growth. Residues of that favoritism still may exist in some quarters. Washington, which also has had a close interest in the industry, began negotiating and implementing in 1968 with Tokyo and other foreign governments a series of export agreements. The terms of those accords for decades significantly reduced Japanese steel shipments to this country. More recently, foreign critics have blamed cartelization and pricing distortions both for what they regard as excessively aggressive Japanese export strategies and for inadequate foreign access to the Japanese market.
Changes in the steel industry, coupled with the yen's appreciation and the growth of the Japanese economy, have combined to make Japanese steel companies relatively high-cost producers. This is especially true in comparison with rapidly growing mills based in a number of Asian and Latin American nations. To date, however, Japan remains a net steel exporter by a significant margin, raising questions about the role of market forces in Japan itself.
Japan's integrated steel makers appear to sense that their days of competitive preeminence are over. They have moved to form partnerships with firms based in the United States and elsewhere. They also have diversified domestically. These ventures at home and abroad still seem rather limited in nature and have been far from uniformly successful. The future for Japan's big steel companies lies in their core strengths in steel manufacturing. That prospect may not materialize, however, until these firms substantially contract the size of their operations.
YEN'S DEPRECIATION PARTIALLY REFLECTED IN
--- by Douglas Ostrom
For more than a decade American firms have complained that the yen's seemingly inexorable strengthening was not reflected in the export prices charged by the Japanese competition. Over the past year and a half, as the yen has dropped in value against the dollar, the implied price changes in foreign markets have materialized only partly; that is analogous to the earlier experience. In this instance, though, Japanese firms have not moved as aggressively to reduce export prices as currency changes alone might suggest.
TOKYO STOCK PRICES TWIST IN THE
--- by Jon Choy
"Jittery" might be an appropriate adjective to describe the past few months' trading on the first section of the Tokyo Stock Exchange. Although the economic picture in Japan remains more upbeat than not, domestic investors have kept a low profile, unconvinced that the market is poised for a bull run. This reticence also has disappointed foreign investors who, at least until lately, had been putting more assets into Japanese equities in the expectation of a boom. The earlier strong foreign confidence in Japanese stocks and associated investments had helped to lift the Nikkei 225 average of selected first-section stocks in what was a sort of self-fulfilling prophesy. Over the past several months waning foreign confidence along with other domestic economic and political factors have contributed to a whipsaw effect on the index. Despite recent renewed interest among investors, a sense of aimlessness pervades the TSE's trading floor. This stands in stark contrast to the prolonged bullish movements on the New York Stock Exchange, which set another new record in topping the 6,000 mark October 14. With the results of the critical lower house Diet elections still an open question, moreover, Japanese investors are keeping their fingers crossed against further wild market swings.
U.S., JAPAN CONTINUE TO EXPLORE MILITARY
--- by Barbara Wanner
The American defense establishment's determination since the early 1980s to realize more reciprocity in U.S-Japan defense technology flows has been tested sorely over the years by numerous political, financial, bureaucratic and technical factors. That the two governments finally were able to conclude at the end of July a memorandum of understanding governing production of Japan's next- generation fighter support aircraft, called the F-2, provoked a sigh of relief among some industry observers who had been worried that the Japan Defense Agency ultimately might decide to abandon the project. The exorbitant costs of F-2 production and protracted disagreements between Washington and Tokyo concerning the division of work between U.S. and Japanese defense contractors, among other factors, had appeared to cast a pall over this and other defense codevelopment and coproduction arrangements (see JEI Report No. 32B, August 23, 1996).
Contrary to recent press reports, Tokyo appears in no hurry to consider what role, if any, Japanese industry might play in jointly developing and producing with the United States a theater missile defense system. TMD, which could cost as much as $12 billion over a multiyear development schedule, is expected to be a system capable of repelling potential tactical ballistic missile attacks by combining surveillance satellites with an advanced antimissile system. Among other media outlets, The Japan Times reported October 7 that the two countries had reached a basic agreement to jointly develop a TMD system, which would feature Patriot Level-3 (PAC-3) surface-to-air missiles to destroy low- and medium-altitude ballistic missiles and antiballistic missiles launched from the ship-borne Aegis system for high-altitude interception. According to U.S. defense sources, however, the report was completely erroneous. The Japanese government has yet to firm up its policy concerning TMD and, according to insiders, JDA probably will not complete its study of this issue much before a summer 1997 deadline.
As the American presidential election campaign heads into its final weeks, issues concerning U.S. policy toward Japan or East Asia as a whole barely have registered on the radar screen. Some observers suggest that the low profile assumed by Japan-related policy issues in the current campaign is indicative of a "maturing" of the bilateral relationship. At least as important, however, is the relatively solid health of the American economy and Japan's own recent record of relative economic stagnation. To many Americans, Japan is simply no longer the threat that it once was although perceptions can change quickly.