Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Mar 30 1992 Date: Mon, 30 Mar 92 05:43:33 EST Message-ID: 03-30 0000 BONUS: Japan's pricey shopping costs USA TODAY Update March 30, 1992 Source: USA TODAY:Gannett National Information Network The rising sun, it seems, can also set. For much of the 1980s, Japanese investors appeared intent on buying the world - at premium prices. Riding an economic boom at home and a soaring yen abroad, they embarked on a shopping spree, snapping up office buildings, hotels, movie studios, golf courses, computer companies, stocks, bonds, gold and French Impressionist masterworks - creating an empire of wealth stretching from California to Cape Town. At the height of the frenzy, one tycoon joked that Japan's government should make an offer for the entire state of Hawaii. Somehow, it didn't sound all that crazy. Now it does. WHAT HAS PUT THE BRAKES ON JAPANESE BUYING? And so do many of the deals engineered by Japanese investors during the boom. Japan has slid into a recession - mild by U.S. standards but harsh enough to bring its highflying economy back to earth. The near-collapse of the Tokyo stock market and a slump in Japan's inflated land values have shut off the easy credit that fueled overseas expansion. WHAT HAS HAPPENED TO CAPITAL? Capital, which poured out of Japan for much of the past decade, has reversed direction. Many globetrotting investors have decided it's time to go home. "The incredible speculation during the '80s left Japan with some serious structural problems," says Daniel Burstein, author of the best-seller "Yen! Japan's New Financial Empire & Its Threat to America." "Now they've got to clean them out of their system." WHERE DID THE JAPANESE GO WRONG? Many Japanese investors, meanwhile, need to clean the egg off their faces. Despite their awesome reputation as economic competitors, the Japanese have an uncanny record of buying at the top of the market. The bursting of the bubble has left them looking more than a little foolish, both at home and abroad. "For a long time, they felt they could do no wrong," says James McCabe, co-director of U.S. research for Nomura Research Institute, an arm of Japan's largest brokerage firm. WHAT ARE SOME OF THEIR MORE EXPENSIVE MISTAKES? Pouring billions of yen into the Japanese stock market. From 1985 through 1989, the Nikkei index soared nearly 240%, hitting a peak of 38,916. Corporations and individuals alike plunged into a sea of zaitech - complex financial deals designed to profit from soaring asset values. But the crash has wiped nearly $1.8 trillion off the total market value of the Tokyo Stock Exchange's first section - the Japanese version of the New York Stock Exchange. The Nikkei recently dropped below 20,000 and has been hitting five-year lows. Further losses could destabilize Japan's financial system. WHO ARE AMONG THE HARDEST HIT? Japanese mutual-fund investors who flocked to buy shares in special funds, similar to unit trusts, sold by the big brokerage houses. The funds were required to hold their stocks for up to five years. Investors who bought at the top found themselves trapped when the market collapsed. WHAT ATTRIBUTED TO JAPAN'S DECLINE? Bad timing in the U.S. stock market. Japanese investors missed the first five years of the big bull market of the 1980s. Then, in 1987, as the market roared toward its October crash, they jumped in. Their net investment in U.S stocks soared to $11.3 billion that year, up from $3.3 billion in 1986. After the crash, they sat on the sidelines for awhile, bought again as prices rose in 1989, then sold heavily during the 1990 slump. When the market bounced back early last year, they bought big, well-known stocks like IBM, largely missing the run-up in small growth stocks, says Yasumasa Kumamaru, director of research for Daiwa Securities' New York office. HOW DID PAYING LAVISHLY FOR U.S. REAL ESTATE HURT? From 1987 through 1990, Japanese individuals and property companies spent nearly $65 billion on U.S. properties, including posh hotels, downtown office towers and other trophy properties. One of the most disastrous deals: Minoru Isutani's 1990 purchase of Pebble Beach Golf Links in California for $841 million. When his plan to sell memberships to wealthy Japanese golfers fell through, Isutani sold the course to an arm of the giant Sumitomo Bank. His reported loss: $341 million. WHAT ABOUT BETTING ON THE DOLLAR IN THE TREASURY MARKET? During the late 1980s, Japanese dealers bought 20% to 40% of all Treasury bonds sold at auction. Most were traded to other brokers and placed with investors around the world. But Japanese customers took a share, with dismal results. "They got smoked," says David Strongin, director of international finance at the Securities Industry Association. HOW DID THEY `GET SMOKED'? Japanese buyers, for example, added nearly $18 billion in long-term Treasuries to their portfolios in 1985, just as the dollar, then equal to about 250 yen, crumbled. A falling dollar makes U.S. assets cheaper to buy but hurts Japanese investors on their existing holdings since they count their profits and losses in yen. By the end of 1987, the dollar had fallen to 125 yen, cutting the value of their bonds in half. Author Daniel Burstein estimates that Japanese insurers alone lost at least $20 billion on their Treasury trades during the 1980s. HOW MUCH DID THE JAPANESE LOSE BUYING U.S. COMPANIES? Bridge stone, Japan's largest tire company, lost $300 million in 1990 on its 1988 acquisition of Firestone. Sony paid more than $5 billion for Columbia Pictures - a price some analysts say is hard to justify, given Columbia's earnings potential. Venture capital investments in a number of small high-tech firms have also been disappointing, says James Borton, editor of Venture Japan, a newsletter that follows such deals. Kubota, an Osaka-based tractor maker, last year wrote off its $130 million start-up investment in Stardent, a Concord, Mass.-based computer firm. HOW DID BIDDING UP PRICES AT INTERNATIONAL ART AUCTIONS HURT? During the late 1980s, Japanese companies used investments in art to dodge taxes and shift money between subsidiaries. In the process, they more than doubled prices for some works. Ryoei Saito, chairman of a Japanese paper firm, set a record in 1990 when he paid almost $83 million for van Gogh's "Portrait of Dr. Gachet." When problems at home knocked most Japanese bidders out of the market, prices immediately collapsed. WHAT ARE STUNG JAPANESE INVESTORS DOING NOW? Some Japanese investors are retreating to their side of the Pacific. Last year, Japanese spent a miserly $3.8 billion to buy U.S. firms, down from more than $15 billion in 1989, according to the Blackstone Group, a New York investment bank. Japanese purchases of U.S. real estate have fallen 70% since 1988. HAS EVERY JAPANESE DEAL BEEN A BUST? Matsushita's 1990 purchase of entertainment giant MCA, for example, is working out well, analysts say. "I think they made a wise decision," says Jeffrey Logsdon of Seidler Amdec, a Los Angeles brokerage firm. While some overleveraged speculators have gone broke, most Japanese investors have the resources to ride out their problems, says Jack Rodman of Kenneth Leventhal. Bonus Editor: Michele Coleman. 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