BOSTON — THE Japanese are flexing their financial muscle again on Wall Street. ``It's a return after a one-year absence,'' says David Hale, chief economist for Kemper Financial Services Inc. in Chicago. ``I think one of the things that's been buoying our market this year is the sense the dollar's going to be in a trading range and not in a free fall.''
Back in 1987, Japan's presence in the United States stock market rose very dramatically, says Mr. Hale. After the market crash in October of that year, the Japanese dropped out of the market, only to reappear in the second quarter of this year.
The calm attitude of the Japanese toward the dollar leaves them free to invest in the US. And the economic might they bring to investment is colossal.
Nihon Keizai Shimbun, a Japanese economic newspaper, reported last week that in 1987 Japan's national assets overtook those of the United States for the first time, $43.7 trillion versus $36.2 trillion. That means that, at least on paper, Japan is the richest nation on earth.
In its survey of the Global 1,000 last month, Business Week magazine ranked Japan's market capitalization No. 1 at $3 trillion and the US No. 2 at $2.1 trillion. In fact, the leading five of the world's corporations, in terms of market value, are Japanese. Seventeen Japanese banks are among the world's most-valuable 100 corporations - but none of any other nation. Japan's Big Four securities houses (Nomura, Daiwa, Nikko, and Yamaichi) are among the top 100 - but none of any other nation.
With the exception of the US, Japan has the largest government bond market in the world.
So when it comes to securities, where do the Japanese turn to invest their fortune? For the most part, in the US, especially in blue-chip stocks, says Robert Brusca, chief economist for the Nikko Securities Company International Inc. in New York.
``The Japanese principally invest in the US market. It's the biggest financial market. Our stock market in particular offers much better liquidity,'' he says. ``If you take a look at the European stocks by comparison, many of them are very, very small. The market capitalization of the European markets is quite small and the individual issues are tiny for the giant Japanese investors. So they really prefer the US market where we have some huge corporations and where they can trade large blocks of shares.''
Japanese ardor for Wall Street, like that of many American investors, cooled considerably after the October 1987 crash. But the Japanese came back with a flair in the spring.
``There was a big push starting in April by Nomura and it spread out throughout the whole industry,'' says Hale.
In a report for the Donaldson, Lufkin & Jenrette Securities Corporation, chief investment officer Eric Miller says: ``Estimates suggest that the Japanese - who were net sellers of US stocks in the amount of $1.5 billion in the first three months of the year - turned around and bought $7 billion worth in the second quarter, an important swing of $8.5 billion.''
Solid data show that Japan's worldwide investment is indeed up. In June, the Japanese net foreign purchases of equities was $3.3 billion.
``That's an extraordinarily large figure,'' Brusca notes. ``A year ago they were running at something around $500 million per month.''
When it comes to bonds, the Japanese gobble up even larger numbers worldwide - $6.7 billion in net foreign purchases in June.
The Japanese are particularly enthusiastic about US Treasury bonds. Last week the Federal Reserve Board gave the Japanese the green light to continue as primary dealers in these bonds, after assessing and rejecting arguments that Japanese dealers were discriminating against American dealers in the sale of the bonds.
The Japanese passion for the bonds - ``they buy government bonds like crazy,'' says Brusca - was probably one reason the Fed chose to preserve the status quo. The bonds help to finance the US federal budget deficit, and the Japanese have been known to buy 20 or 30 percent of the bonds on sale at a given auction.