Japan's Economy Turning Around

TOKYO -- During Japan's go-go years of rapid economic growth, struggling artists used to get jobs with flush corporations whose executives were redecorating their offices. The artists' money would thus trickle down to Hideki Takuma's little gallery, where they rented space.

Now such lavish corporate spending is rare, and Takuma has half the clients he once had. For him and many others, Japan's worst post-World War II recession, which began in 1990, feels never-ending.

But it has ended. And Japan's corporations are spending bigger than ever -- on the things that count, such as factories and semiconductors. Although common wisdom remains that the U.S. economy is relatively strong and Japan's is on the ropes, it now appears that 1996 economic growth here will surpass that of the United States.

In other words, Japan is back.

It is not a milk-and-honey recovery: For most Japanese, the recovery mirrors the recent experience of Americans. The stock market is booming, but little improvement is reflected in wages or job security. There is no return to the carefree conspicuous consumption of the late-1980s bubble years or to the extremely rapid growth rates of Japan's postwar reconstruction and decades of catch-up to the West.

"People still have a dark feeling," said Keiji Sakai, a partner in a small shoe store in a Tokyo residential neighborhood. "I don't believe the figures they put in the paper."

Yet some changes during the recession boosted living standards even without significant wage growth. Japan has become far more open to imported consumer goods, for instance, and ordinary people are increasingly enjoying this -- partly by buying luxury items at what for Japan are bargain prices.

Meanwhile, even at Japan's low point in the third quarter of 1994, the nation poured more of its gross domestic product -- 14 percent -- into capital investment than the United States has in several decades.

"People got used to thinking in terms that the U.S. economy had come back -- competitiveness was restored, the country was lean and mean ... and that Japan had severe structural problems," said Ron Bevacqua, an economist at Merrill Lynch Japan. "But people are going to start remembering that Japan did not sink into the ocean over the past four years."

Money that in the past might have flowed freely into office artwork is pouring into capital investment that not only has helped pull Japan out of recession but is building future industrial strength.

In late April, electronics giant NEC Corp. announced a $1.86-billion program aimed at creating semiconductors powerful enough to reduce today's personal computers to the size of wristwatches. Toyota Motor Corp. announced a 50 percent increase in its high school and college graduate hiring plans.

And late last month, the Tokyo stock market reached heights not seen in more than four years, when prices were plummeting with the bursting of the late-1980s speculative bubble.

"It's a reasonable assumption to make that, during the next two years, Japan will be the star performer" among the world's rich industrialized countries, said Russell Jones, chief economist at Lehman Brothers in Tokyo.