Debtor US seeks to offset creditor Japan

Many people know that this year the United States will become the largest debtor nation in the world, owing more than Brazil or Mexico. Fewer may be aware that Japan could become the globe's biggest creditor nation by the end of this year.

The foreign money earned from Japan's huge trade surplus, approaching $50 billion this year, is not just stuffed in piggy banks.

It is invested around the world, with the biggest chunk of it going to the US.

So far there has been little alarm in the US over these ``Nippondollars.'' Attention has focused rather on the flood of Japanese imports and the massive trade deficit with Japan. But if history offers any precedent, concern about Japanese investment could increase.

In the 1960s, many in Western Europe were deeply concerned about a rush of American investment. Some nations, such as France, imposed limitations on foreign investment.

During the 1970s, a massive flow of ``petrodollars'' prompted considerable anxiety in this country over Arabs buying up farmland or companies of strategic interest. That concern abated as most OPEC nations lost their international payments surpluses.

By the early 1980s, Saudi Arabia had built up international monetary reserves approaching $150 billion. Since then, because oil production has plummeted, the desert kingdom has been forced to use perhaps $50 billion of those reserves to pay its bills.

In the meantime, Japan has been piling up external assets that could reach $120 billion by the end of this year.

Rep. John Bryant (D) of Texas has introduced legislation aimed partly at Japanese investment. It would require full public disclosure of foreign investments in this country of $100,000 or more, or 5 percent of equity ownership, and the interests behind them. The bill also demands investment reciprocity.

New foreign investments here would be allowed only if the investor's home country permitted Americans to make similar investments there on equivalent terms.

Japan limits foreign investment to no more than 25 percent of any ``technologically innovative'' company. So under the Bryant bill, it would find its investments in American high-tech companies similarly restricted.

``They drain us of our technology while denying us access to theirs,'' Mr. Bryant charges.

Such proposals attract strong opposition from Robert D. Hormats, a former State Department economist now with the investment banking firm Goldman, Sachs & Co.

``It would be an enormous mistake to restrict foreign investment in the United States in any way,'' he says. ``Japanese investment here is not only welcome but necessary. It is very helpful in creating jobs, and, in the medium term, it is one way of reducing trade imbalances.''

Many Japanese-owned companies in the US produce goods that would otherwise be exported from Japan.

Japanese direct investment in plant and equipment abroad has gone up from $4.6 billion in fiscal year 1980 to $10.1 billion in the Japanese fiscal year 1984, ending March 31, 1985.

At that time, Japan's cumulative foreign direct investment amounted to $71.4 billion, about twice as much as it was only four years earlier.

That's a fantastic rate of growth.

Japan's direct investment in the United States totaled $19.8 billion earlier this year. In Western Europe it amounted to $9 billion; in the Far East, $18 billion; in Australia, $3.1 billion; and in the Middle East, $2.9 billion.

The Japanese also have billions more invested in American stocks, bonds, certificates of deposit, and other paper.

Shuhei Sato, head of the merchant banking division of Japan's Sanwa Bank branch in New York, notes that until recently Japan was criticized abroad for not making enough foreign investment. ``Perhaps the pace should be slowed down,'' he says. But he also notes that Japanese investment helps finance the US budget deficit. Without it, he adds, interest rates here would be higher.

Japanese foreign investment, direct or portfolio, has attracted a great deal of attention in the financial markets.

American corporations send officers to Tokyo to tell investors about their companies. American investment banking firms court Japanese institutional investors, such as insurance funds, for orders. Moody's has just set up a subsidiary in Tokyo to give investment ratings on Euroyen debt -- issues of bonds or other securities for the international capital markets denominated in Japanese yen.

But the flow of Japanese money abroad has also supported the price of the US dollar in relation to the yen. The Japanese currency has strengthened far less than the West German mark or the British pound since the dollar peaked last winter. This helps Japanese exports remain highly competitive and discourages imports, adding to the trade surplus and providing more dollars for foreign investment.

To break this cycle, David D. Hale, chief economist of Kemper Financial Services Inc., in Chicago, suggests Japan should take measures to promote greater use of its people's high savings at home.

``The problem with Japan is not that she exports too much or imports too little,'' he holds. ``It is that Japanese domestic consumption has lagged far behind the rapid growth of the country's income and output.''

He continues: ``Should the US . . . be exporting manufacturing jobs to an overcrowded chain of Asian islands, where per capita incomes now exceeds $11,000 per annum and half the homes are not yet connected to sewers, so that its citizens can generate a savings surplus which is then recycled back across the Pacific via the Treasury debt market to subsidize the construction of more vacant office buildings in Houston and Los Angeles?''

The Japanese government, troubled by a slowdown in sales to China as much as the complaints from abroad, appears likely to take some measures this fall to step up domestic consumption.

If Japan does act, Sanwa Bank's Mr. Sato predicts, it will be a typically moderate measure and may not satisfy critics abroad.

Whatever the response, such action could slim Japanese trade surpluses and help keep the world recovery going. CHART: US, Japanese credit roles reverse Assets held by citizens of each country 1980

'81

'82

'83

'84

'85 (est.)

0

40

80

120

140

-40

-80 -120 -140

in billions of dollars US Japan Source: the Kemper Group 30{et