Investing in America: the Japanese Ruling Class as Suckers

When it comes to investing in America, the Japanese ruling class often proved to be very poor businessmen.

The best example is real estate. Japan became the world's largest net capital exporter in the mid-1980s, and Japanese investors went on a real estate buying binge till 1990, striking the fear of "Japan, Inc." in many an American mind. And yet, "Japanese investors in overseas real estate lost vast sums on their investment splurge, and viable long-term investment was the exception rather than the rule" (Roger Farrell, "Organisation, Motivations and Case Studies of Japanese Direct Investment in Real Estate 1985–94," Pacific Economic Paper No. 282, August 1998, p. 47). The reason? "Most Japanese real estate FDI involved the delegation of management functions and passive ownership," and "[l]ow yields on real estate were accepted because of false expectations of capital gain, fuelled by easy access to real estate financing" (Farrell, p. 46).

The latest example of poor investment is missile defense. Japan -- which began its joint research on a missile defense system with the United States in 1998 and "decided last year to buy a missile defense system" from it -- "signed an agreement [with the United States] on Friday [December 17] cementing cooperation on the development of a ballistic missile defense system" (Reuters, "Japan, U.S. Sign Missile Defense Pact," December 17, 2004).

Apparently, the Japanese power elite were undeterred by the news of yet another failed missile defense test just two days before: "The Missile Defense Agency's Integrated Flight Test (IFT)-13C was aborted 'after the interceptor missile experienced an anomaly shortly before it was to be launched.' The target, perhaps representing a North Korean ICBM hurtling toward a U.S. city, performed flawlessly" (Jeffrey Lewis, "Performance Anxiety: Missile Defense Booster Fails to Rise to the Occasion," Defense Tech, December 15, 2004). The interceptor failed to launch even though the launching had already been delayed several times due to "bad weather or problems with equipment at the Pacific test range on Kwajalein Atoll" (David Stout and John H. Cushman, Jr., "Defense Missile for U.S. System Fails to Launch," New York Times, December 16, 2004).

It must be also noted that "[t]he last test of the interceptor, on Dec. 12, 2002, was also a failure, as the interceptor failed to separate from its booster rocket, missed its target by hundreds of miles and burned up in the atmosphere. . . . In 2003, a test of another part of the system, based on Navy ships, also failed" (Stout and Cushman, Jr., December 16, 2004).

Each missile defense test costs more than $100 million. Altogether, the Missile Defense Agency of the Defense Department has already spent "more than $80 billion since 1985" (Stout and Cushman, Jr., December 16, 2004) on the trophy weapons system that has proven to be an expensive dud. The American power elite evidently take the Japanese ruling class for suckers that they are, having observed them rapidly buy up and quickly sell off -- at huge losses -- the Rockefeller Center, the Pebble Beach golf resorts, and other trophy properties.

Japan is also "by far the world's largest holder of American Treasuries, with 12% of the total stock" ("The Dollar: Which Way Next?" The Economist, August 28, 2003 ). Ominously, Asian central banks "have been weaning themselves off dollar assets for the better part of the year," with the exception of -- you guessed it -- Japan ("The Makings Of A Meltdown: Why the Danger of a Stampede Away from the Dollar Remains," BusinessWeek, December 13, 2004 ). The Japanese ruling class may soon be left holding the falling-dollar bag. Serves them right? No doubt. Except that that they will pass the buck to Japanese workers, whose suppressed consumption (as well as others') has allowed Washington to run an empire on deficits.