Surviving the Storm

The oil crisis originally appeared to many Japanese as an "economic Guadalcanal"--the point at which heady advance turned into steady retreat. Predictions abounded that the world's second richest economy, which depends on the Middle East for 84% of its oil, would fall into a 1974 recession or even depression. Nothing of the sort has happened. Despite an initial panic and rising inflation, oil imports dropped only slightly, and now that Japan is on the Arabs' list of "friends," the government unofficially predicts that 1974 imports will actually rise 4% or so over 1973. The doomsday atmosphere has changed to a new mood of optimism.

As if to signal that mood, the government has now begun to ease restrictions on energy use. It decreed an increase in oil supplies doled out to industry. To be sure, buildings still cannot be heated to over 68DEG F., gasoline stations must shut down on Sundays and holidays, and neon lights are banned after business hours. But those measures, says Toshinobu Wada, an official at the Ministry of International Trade and Industry, remain merely "to foster a psychology of energy conservation."

Now the oil crunch is seen as a problem of prices, not availability. Indeed, oil prices, already up to $9.50 per bbl., may rise a further 64% to cover increases in the price of Middle Eastern crude. Even so, Japanese forecasters are predicting that the country's economy will grow 4% or 5% in fiscal 1974, which ends in March 1975. Over the next decade, reports the respected Japan Economic Research Center, the growth rate should average 9.2%--extraordinarily high by Western standards.

The key to all the plans lies in meeting the high bill for oil--up from $7 billion in 1973 to an estimated $15 billion this year. To do that, Japan will push exports hard while stepping up its battle against inflation at home. Says Takamasa Matsuda, director of research at the Fuji Bank: "The higher oil costs affect every nation, not Japan alone. The increased import costs can be partially absorbed by higher export prices, and the rest of it will be absorbed by more efficient energy use within the country."

The strategy may well work. Japanese industries are already streamlining their assembly lines and their product lines. Meanwhile, government policies to control inflation are holding the rise in wholesale prices, which jumped 35% last year, to a more modest 14.6%--though that effort is threatened by labor demands for a 30% wage boost. Savings deposits are up and expense-account spending is down--both sure signs of a "back to work" mood.

But the renewed emphasis on exports may be bad news for the U.S. and Western European nations. They had breathed a huge sigh of relief early last year when Japan began exporting capital as well as goods and turned its attention to solving such pressing domestic problems as pollution and housing. Through most of last year Japan imported more goods than it exported, trimming its reserves of foreign currencies from a bloated $19 billion to a more moderate $12 billion in the process.

Whether the return to exports will once again disrupt other nations trade balances with Japan remains to be seen. Since the Japanese are fully aware of how much ill will past export drives built up in the industrialized world, they may direct most of their attention to trade with Southeast Asia and China. On the other hand, Japan has to meet the higher prices for oil, and that might mean reverting to its aggressive selling policies everywhere, at the expense of the U.S. and European economies.

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