When The Mask Cracks
The changes have taken place unannounced. Foreign attention has focused on the governments 2,800-point deregulation programme which includes the so-called Big Bang proposals to open the financial markets to competition. This reached a decisive stage last month when parliament agreed to scrap remaining foreign exchange controls.
The deregulation plan is only one feature of a larger advance of market forces at all levels of the most tightly controlled economy in the developed world.
This silent revolution is pervasive enough to bring structural change, immune from economic or political pressures. It presages a fall in Japans unusually high prices, already under way in services such as stockbroking and commodities, including petrol and food.
This has led to growing disparity between profitable businesses and weak ones and will -- so the Tokyo government hopes -- spark a rise in the countrys growth potential. Foreign governments, worried about Japans ability to boost demand for imported goods and to stop the trade surplus from rising, have reason to be cautiously optimistic.
The consensus-driven centralised system of decision making ... is on the verge of collapse, says Eisuke Sakakibara, historian and director-general of the finance ministrys international finance bureau.
The origins of the silent revolution are partly to be found in a shift in political opinion , giving impetus to official deregulation. For the first time, all Japans main political parties campaigned for deregulation in last autumns general election.
That consensus formed late. It was an overdue response to the economic slowdown that began six years ago and the rise of the yen to Y79.75 to the dollar in April 1995, which rendered much of Japanese industry uncompetitive.
The yen has since fallen more than 30 per cent. But the consensus for deregulation appears to have held. Mr Ryutaro Hashimoto, the Prime Minister, has vowed to achieve structural economic reform even if it burns me up.
Evidence of his governments sincerity is the impressive list of deregulation steps actually delivered over the past year. Neither has there been any effort to soothe the associated short-term pain, a tendency which softened the impact of previous attempts to cut red tape.
In finance, for example, the essential first step of the governments plan to make Tokyos financial markets as efficient and open as those in London or New York is under way with the agreement to abandon exchange controls.
Senior finance ministry officials say that in the first onslaught of competition, there will be no attempt to rescue smaller stockbrokers and banks. That onslaught has already started, in the form of a commission-cutting battle for trade in over-the-counter shares. There can be no soft landing because there is nowhere to land, says Mr Goro Tatsumi, president of Kosei Securities, a small Osaka-based broker.
In the same vein, the ministry has ignored resistance by Japanese insurance companies to a market opening agreement with the US. In energy, the end of a cartel on oil imports has prompted petrol prices to fall by a fifth, causing domestic oil refiners profits to collapse and obliging two leading refiners to merge.
In transport, permission was granted last October for the formation of four new domestic airlines to operate on the worlds busiest route, from Tokyo to Sapporo. Partial deregulation of taxi fares was allowed last month, a crack in one of Japans doughtiest cartels.
In telecommunications, Nippon Telegraph and Telephone, the dominant carrier, is to be split, along US lines, between a long-distance and international group and two local operators by 1999. It has already been obliged to pen its domestic lines to foreign companies.
Beneath this government-driven deregulation, the advance of market forces is visible in many areas, including capital markets, and in the way companies treat each other and their employees.
Take the share and debt markets. Equity investors have, over the past six months or so, begun to recognise that it is no longer realistic to value companies on the basis of their membership of a group or sector. Over the past year, for example, the shares of securities companies have under-performed the market by just over a quarter, while precision instruments groups -- hardened by years of export competition -- have out-performed by about the same amount. Divergence as great as this is unprecedented, say analysts.
This is in part recognition that fewer losers will be bailed out, as became apparent late last year when the finance ministry ordered the closure of Hanwa Bank, a small regional lender, in the first enforced shutdown of a bank in more than half a century. Share price divergence is also about who can survive and succeed in the face of deregulation, says Mr David Pike, head of research at BZW Research in Tokyo.
A similar polarisation has been seen in bond markets. The most notable example is how the daily fundraising costs of Nippon Credit Bank, the troubled lender, shot up above the average for its peers in February, when news broke of its bad debt problems...
As a result, credit rating agencies are giving increasingly divergent ratings to members of the same sector, driving up the financing costs of weak companies.
Mr Masaru Kakutani, Managing Director of the Japanese branch of Moodys, the US rating agency, says: We used to think that members of a group would be supported. But then we went round company presidents and asked about support. They said members were on their own until the last minute. That means there will be losses.
He adds: Ten years ago, (trading companies) behaved as a group and we rated them as such. Now, some have diversified into high technology and some have kept a strong centre, based on their traditional business.
The growing acceptance that it pays to be different is evident in the way the heads of some leading companies describe strategy. The annual report of Mitsubishi Corporation, one of the largest general trading groups, talks of leaving stereotypes behind. Toshiba promises agility and change, while Fujitsu, the computer maker, wants to promote innovation at all levels.
These companies are increasingly putting themselves -- and profits -- before relationships within the sector. Divisions have opened up over the past few years in the Keiretsu system of corporate families which consists of loose alliance between suppliers, manufactures, distributors and banks linked by dozens of cross-share-holdings.
Market forces are also advancing in the way companies pay employees. Last months annual wage bargaining round marked a break with the tradition of roughly equal pay rises for all.
Unusually, workers in internationally competitive industries earned much higher awards than less profitable -- often domestically oriented -- sectors such as banking, or public utilities. Rail employers even split into three groups, with three different offers related to individual profitability.
All this invites the question of how far Japans silent revolution will progress. A pure free market, in which the strong thrive at the expense of the weak, is incompatible with values that most Japanese wish to retain. These emphasise low unemployment and trust in the group -- hangovers from its rural, village-based history.
Many executives and policy-makers speak wistfully of a half-way house. But will Japan be able to achieve such a golden mean? The experience of other countries that have undergone economic deregulation, such as the US and the UK in the 1980s, show that the consequences are difficult to predict and futile for governments to try to control. These look like turbulent times for the Japanese village.
William Dawkins