Considering that Japan's last quarter's Gross Domestic Product figures were a minus .3 percent, the first negative reporting in the last five quarters, there is a surprising amount or optimism about the Japanese economy these days. The stock market is rebounding, and economists are looking past the negative last quarter toward gradual but sustained growth.

This is not just wishful thinking. Japan's corporations are regaining much of the self confidence and footing that they lost during the downturn, the result of many adjustments and strategic moves that businesses have made to expand to emerging markets. Japan Inc. is going global again.

One might think that Japan has always been global. Aren't the skylines of cities from Beijing to Bangkok festooned with electronic advertisements for such familiar giants as Panasonic, Sony or Toyota? Is Japan not an exporting powerhouse now and always has been?

Well, yes and no.

For one thing, Japan is not the exporting powerhouse of popular imagination. About 13 percent of the country's GDP is earned from exports, not that much higher than the 11 percent earned by the United States, which is the least export-dependent developed country. That compares with 50 percent earned by South Korea and 41 percent for Germany.

It is true, of course, that many Japanese brands are household words in every corner of the globe. But many important sectors of Japan's industry have been content to limit themselves to the domestic market, and many of the global brands have moved so much of their production abroad that the products are Japanese in name only.

The trend was best illustrated by the recent agreement between Nippon Steel Corp. and Sumitomo Metal to enter into merger talks. Should the merger be completed, it would create the world's second-largest steel producing conglomerate just after ArcelorMittal of Luxembourg.

Nippon Steel, Japan's largest producer, and Sumitomo currently rank 6th and 23rd respectively in the world steel market. The as yet unnamed Nippon-Sumitomo entity would automatically vault over such worldwide power houses as South Korea's Posco and China's Hebei Iron and Steel Corp.

The merger of the two steel producers is meant to give them more heft in competing for global infrastructure contracts, especially in emerging markets, and to better compete with the iron ore mining conglomerates, which have had their own mergers. Indeed, the press announcements are dotted with the words "global" and "emerging markets".

Nippon Steel president Shoji Muneoka said that the merged company would "aim to globalize at a faster speed than either Nippon Steel or Sumitomo Metal could have done on its own." Or as Prime Minister Naoto Kan said in the context of another such alliance last year: "Once again we have to reinvent Japan Inc."

Even though the new combination will control about 40 percent of the Japanese steel market, the merger is expected to easily get the green light from the Japan Fair Trade Commission, which polices potential monopolies. In recent years, the trade commission has been more flexible in approving such mergers, even when they appear to restrain trade locally. It is more inclined to factor global market share rather than just domestic.

As with the trade commission, the government-run Japan Bank of International Cooperation (JBIC) is going global too. Former premier Junichiro Koizumi had merged JBIC with other government financial institutions concerned with domestic projects. The new Democratic Party of Japan government wants to turn it back into an independent bank with a focus on exports.

The bank is already mulling whether to lend billions of dollars to help finance a nuclear power plant project in Texas. Two private corporations, Toshiba and the Tokyo Electric Power Co. (Tepco) have also invested heavily in the plant.

Faced with declining demand for electricity in Japan, Tepco, which supplies electricity to the capital, is becoming increasingly dependent on overseas projects. Its investment in the South Texas Project was the first time that a Japanese utility, as opposed to a builder, had invested in an overseas nuclear power plant project

Tepco's president, Masataka Shimizu, in early fall of last year outlined a corporate plan to spend as much as ¥1 trillion (US$10 billion) over the next 10 years to expand into overseas markets, including in addition to nuclear power plants, new thermal power and other "new energy" sources in developing countries.

Japan's major nuclear power vendors, Toshiba, Mitsubishi Heavy Industries and Hitachi all have international alliances of different degrees (Toshiba owns Westinghouse, for example), but they found that not even that is enough to compete globally when South Korea shocked the industry by snatching the contract to build five large nuclear power plants in Dubai.

The reaction was to form a new entity called the Japan International Nuclear Development Corp., incorporated in October, which is made up of the three major nuclear power vendors and ten utilities in Japan to gain added clout in competing for foreign nuclear plant projects.

Recognizing that they are often competing as much with foreign governments as much as with foreign corporations, (the Russians secured two new plant projects in Vietnam by promising to supply that country with submarines) the government has been attempting to hawk its famous bullet-trains round to secure orders.

Meanwhile, strong overseas demand, especially in emerging markets such as Central and South America has boosted the bottom lines of all seven Japanese automobile makers, helping to offset shrinking domestic sales and what Toyota hopes is a temporary downturn for its cars in North America.

The higher sales have also helped the automakers ride out the effects of the strengthening yen. In the past when the yen rose above 100, the newspapers were full of pictures of grim-faced currency traders and columns filled with doom. Last August it rose to nearly 80 to the dollar, yet there were hardly any remarks, and the stock market scarcely skipped a beat.

Toyota is even hoping that North American sales will begin to pick up in the new fiscal year, now that the memory of massive recalls that began in the fall of 2009 are fading. Toyota was buoyed when on Feb. 8 the US government declared that no evidence pointed toward engine electronics playing a part in the mysterious acceleration.

In February too, Toyota announced that it was opening a new factory in a rural part of northern Honshu. It was the first assembly plant that the company has built in Japan in 18 years. Incorporating many cost-saving managerial techniques learned over the years, it will produce 150,000 cars annually. It is part of the company's promise to keep at least 40 percent of cr production in Japan proper.

Asia Sentinel

The Rebirth of Japan Inc.

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