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. Last Updated: 07/27/2016

U.S. Awaits Tokyo's Next Move

WASHINGTON -- Could Japan be next? For months, as the contagion in the Asian markets spread from Thailand to Indonesia to South Korea, that question has lurked in the background.

Few officials will discuss the subject publicly, except to recite the reasons why Japan is different and will not succumb. The reasons are compelling: Japan prodigious national savings, $230 billion in U.S. Treasury bonds, and industrial strength that is rivaled only by the United States.

So far, though, none of that has compensated for a series of huge miscalculations that has mired Tokyo in economic trouble since 1991. A sudden collapse of the kind that afflicted the smaller Asian economies seems unlikely.

But with every bit of economic evidence suggesting things in Japan could worsen before they improve, Washington and the markets are awash in gloomy visions in which a panic in Japan could leap the Pacific.

It seems even less probable that the United States will catch Asia's flu -- indeed, Tuesday, Wall Street shrugged off a 5.1 percent drop in the Japanese stock market.

To a great extent, Asian markets are responding to the collapse of a huge speculative bubble that began in Japan and spread through Southeast Asia, fueled by cronyism and a good deal of old-fashioned fraud.

But markets feed off each other in unpredictable ways, as Americans were reminded last month after a run in Hong Kong resounded in the United States.

The spin on the crisis that Japanese government officials are peddling is that a new age has dawned in which they will no longer let problems linger by propping up failing companies.

It is an appealing pitch, a signal to the world that Japan is finally going to let market forces rule its economy, rather than insist that the country's bureaucrats bend the market forces.

Letting a large number of companies die involves a lot of short-term agony, but, in the minds of U.S. officials, it sets the Japanese economy on the path to growth.

No doubt U.S. companies with heavy exports to Japan will suffer. Japan also may sell some of its huge holdings of Treasury securities to smooth over a rough patch, and that could roil the American bond market, weaken the value of the dollar and, in the worst case, lead to higher interest rates in this country.

There is always the possibility, however, that Japan's Finance Ministry is not telling the full truth when it insists Japan is changing so quickly.

There is plenty of reason to be skeptical. Hashimoto also promised that Japan's financial sector was cleaning up its act in 1991, when he served as finance minister.

It was on his watch that the country faced its first financial scandal, in which the four biggest securities houses admitted they compensated big customers for losses when the Japanese market began to turn down.

The companies apologized and said it would never happen again. Hashimoto resigned his Cabinet post. And the practices went on, leading to Yamaichi's admission Monday that it hid more than $2 billion in off-the-books losses for years.

The fear in Washington is that Hashimoto will bend and aid companies that deserve to fail -- perhaps acting overtly or perhaps in the more cloaked, traditional manner of Japan.

Japanese industry would pressure the government to let the yen weaken so that Japan's cars and computer chips remain competitive with goods built by its neighbors. The U.S. trade deficit with Japan would surge and eventually, a growing deficit could threaten jobs in the United States, particularly in industries that compete directly with Japanese products.