Japanese investment in Asia to expand in 1995, says Nomura

Japanese investment in Asia to expand in 1995, says Nomura

TOKYO (AFP): Japanese investment in the rest of Asia will take off in 1995, after already strong growth in 1994, no matter what happens to the yen, a senior Nomura Research Institute economist said yesterday.

Kwan Chi Hung, senior economist at the Center for Policy Research at the institute run by Japan's biggest securities firm, added at a press briefing that the strength of the yen also favored all Asian companies in direct competition with Japanese companies.

The economist said many many projects were planned by Japanese firms. "Whatever happens, they will be carried out," he commented, emphasizing that there was often a large gap between planning investment and the execution of a project.

The current strength of the yen favors moving labor-intensive industries to neighboring low-wage countries by Japanese firms seeking to safeguard profits.

That strategy promotes the economic development of the country receiving investment, which attracts more Japanese investment and further boosts the yen. Kwan said it was a kind of "vicious circle."

Asia, which attracted 12 percent of Japan's overseas investment in 1989, boosted that share to 21 percent in the first six months of 1994. Over the same period, the U.S. share of Japanese investment dropped from 48 percent to 39 percent.

Investment in the rest of Asia is increasingly focused in the manufacturing sector and partly explains Japan's increasing imports.

This year, 55 percent of televisions and 25 percent of video recorders sold in Japan will have been manufactured overseas, according to the Nihon Keizai newspaper.

Nearly 70 percent of Japan's imports from China are manufactured goods. Many of the largest Japanese electronics firms have set up plants in China, where labor is cheap and strictly controlled.

Trade surplus

The growth in imports and a forecast slowdown in Japan's exports should lead to a balancing out of Japan's foreign trade. "Japan's trade surplus with the rest of Asia will peak out in two or three years," predicted the Nomura economist.

But at present, Asia still suffers from a huge trade imbalance with Japan. Last year, Asia overtook the United States to account for the largest share of Japan's trade surplus.

Kwan said the rising yen helped Asian companies against Japanese rivals. As the price of Japanese imports increased in line with the yen, the cost of imports from other parts of Asia became more attractive, he explained.

"All Asian industries that compete directly with the Japanese are booming," he said, citing the example of South Korean automobiles, Taiwanese computers, and Malaysian electronics.

In outlining Japan's possible investment strategies, Kwan said the current fashion with China may be misplaced because of China's out-of-control inflation could trigger harsh austerity measures in the second half of next year.

"Over the next two years, it may not be the best time to invest in China," said Kwan.