A Cautious Plan To Invest In Japan

Thirty years ago, Japan’s economy was roaring. Flush with cash, the Japanese bought such U.S. icons as Columbia Pictures, the Empire State Building, Firestone Tire & Rubber, Pebble Beach golf course and Rockefeller Center. In Japan, meanwhile, real estate values soared. “At the market’s peak in 1991,” reported the New York Times, “all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.”

- James K. Glassman

The grounds of the Imperial Palace were reported to be worth more than France. Stocks went through the roof. The Nikkei 225 index tripled in just four years, from 13,000 at the start of 1986 to nearly 39,000 at the end of 1989.

A true managerial miracle was behind at least part of the boom. With a fiercely dedicated workforce, the Japanese pioneered such strategies as just-in-time manufacturing, which supplied parts only when they were needed, cutting expensive inventories. But much of the boom depended on low interest rates and a mania for borrowing, encouraged by banks and the government. And then it all came apart.

The Nikkei fell to 16,000 by mid-1992, followed by economic stagnation. Japan’s economy has exceeded 2% annual growth in only five of the 26 years since the bubble burst. Attempts to snap the nation out of its torpor by dropping interest rates to zero and running massive deficits failed.

Lately, Japan has been making a comeback—of sorts. The economy has grown for seven consecutive quarters, the longest streak in nearly two decades. Private investment has risen briskly, and unemployment, at 2.8%, is lower than in any other major economy. But Japan’s turnaround under Prime Minister Shinzo Abe has been modest, even if government enthusiasm is robust. Experts at The Economist magazine project the country’s gross domestic product will rise 1.3% in 2018, compared with 2% for Europe, 2.4% for the U.S. and 6.4% for China.

A yen for exports.