Jolt for Japan

The Tokyo and Osaka stock markets, which had been climbing with heady abandon for more than a year, plummeted at news of a possible Korean truce. Speculative issues such as Nippon Heiwa Sangyo (Japan Peace Industry), which had soared to 400 yen in early February, toppled to 82. Even blue chips like Mitsuokoshi department store tumbled from 670 to 495 yen. Last week the market recovered slightly, but was still far down from its peak.

Long ago, a few farsighted Japanese warned that, but for U.S. spending on the Korean war, Japan's economy would be in perilous shape. But it took the possibility of a peace settlement in Korea, and an end to U.S. spending, to drive home the change.

Tight Little Islands. Japan has been teetering on the edge of economic collapse ever since the occupation ended in April 1952. The only thing that kept it from toppling over was U.S. dollars (G.I.s alone spent more than $20 million a month). Stripped of approximately 45% of her empire, Japan must maintain a population more than half as large as the U.S.'s on an area about the size of California, only 16% of which is tillable.

Exports are Japan's lifeblood; without them, she cannot pay for the raw materials she uses, or for the food her people eat. Yet last year Japan's imports exceeded her exports by $771 million. Only the $386 million pumped into Japan for military goods and $420 million in "invisible exports" (i.e., tourists, G.I. spending, new foreign investments) made possible an apparently favorable balance of trade at year's end of $35 million.

Without wartime props, Japan would find it hard to feed and clothe her people. Even before the Korean war, Japan's exports were being priced out of one market after another by cheaper, and often better-made German, British and Indian goods. Today, Japan's industry is operating at only half capacity, and its real volume of exports is less than half the prewar level. Textiles, which make up nearly half of the Japanese exports, are in the doldrums. The textile industry was one of the first to be revived after the war, and by 1951, Japan was the world's largest exporter of cotton goods. But the worldwide textile recession diminished Japan's markets. There were import cuts by Australia, South Africa, Singapore and Britain. Many Asiatic countries, such as Pakistan, which once bought from Japan, have built up industries of their own.

Westward Ho? The magic solution offered everywhere in Japan for these woes is resumption of trade with Communist China and Russia. Most Japanese industrialists, and many government officials, say quite frankly that they intend to do so as soon as they can in order to find new markets and sources of cheap raw materials. Actually, reopening trade with China would probably be a disillusioning experience for the Japanese. Before World War II, Japan was able to dictate terms to the Chinese; now the positions are reversed.

Delayed Action. Japan's danger is long-range, not immediate. No matter what happens in Korea, Japan can count on U.S. spending in Japan to continue near the present rate for at least two more years. What worries U.S. experts is Japan's inability to prepare for hard times to come. Instead of using the war boom to cut costs and improve techniques, Japan has wasted its opportunity in a huge orgy of luxury spending on everything from Cadillacs and new office buildings to enormous geisha parties. And when & if a depression comes, it is the Communists who will be able to make the most of it.

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