Japan: facing its own test

THE United States is not the only major ``free world'' government facing a profound test of public confidence in its national institutions and policies. Japan, the world's second-largest industrial power, is also undergoing what can only be perceived as a major test of public confidence. In its case, the challenge is more economic than political, unlike the situation in the United States. Nor is a scandal, as such, at issue in Japan. Nonetheless, individual Japanese are being forced to take a harder, more critical look at their society than at any time since the end of World War II.

Japan is facing a period of slower growth. The problem is not recession. Nothing that drastic. For this fiscal year, its economy will expand - somewhere between 2 and 2.5 percent in real terms. That's roughly where the United States is expected to come out, too. But in Japan's case, after years of robust, pell-mell growth, that adds up to a considerable retrenchment - indeed, the lowest economic level since 1974. Next year's growth is expected to be up only marginally, perhaps in the range of 2.5 percent.

The current economic woes are largely attributable to the deflationary impact of Japan's strong yen, which is up some 40 percent against the dollar, compared with its low back in early 1985. But what is equally disturbing to many Japanese business leaders, the ``US economic pattern'' is starting to appear in Japan: Growth is in large measure being fueled by service industries rather than the dominant industrial companies that have given this nation its zip. Older, troubled industries - shipbuilding, coal mining, steelworking - have been particularly hard hit. But newer go-go industries like electronics and autos are also experiencing trouble. Automakers like Toyota, Nissan (Datsun), and Honda are retrenching. Some consumer companies (Sony, for example) are scrambling to open plants in South Korea to take advantage of lower Korean pay scales. But that means loss of jobs within Japan and a threat to Japan's traditional policy of lifetime employment with a company.

As if the current economic difficulties were not enough, the Japanese public is also being called upon by the government to make major changes in the way they view the economy and the role the nation should fill in the world community. Prime Minister Yasuhiro Nakasone is seeking to stimulate the Japanese economy - not just to rev up the marketplace, but to take some of the export pressure off the Americans. Mr. Nakasone is also seeking a major overhaul of Japan's tax code. But that stirs up the business community.

Meantime, Japan is playing a larger role in the world community, underscored by this week's US decision to boost Japan's clout in the World Bank.

Japan will surely surmount its current woes, as it has past difficulties. The Nakasone government is correct in seeking to change the economy to a somewhat more consumer-oriented society. And Japan should be exercising a greater leadership role in world agencies.

All that said, Tokyo's friends and trading partners such as the US need to be sensitive to its predicament. For the US, this is particularly important, since the new Democratic-led Congress will be far more protectionist oriented than has been the case.

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