Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, March 22, 1990                   TAG: 9003222551
SECTION: BUSINESS                    PAGE: B7   EDITION: METRO 
SOURCE: Los Angeles Times
DATELINE:                                 LENGTH: Medium

WALL ST. MAY YET FEEL JAPAN'S MARKET WOES

But many experts see a growing risk of spillover damage to U.S. stocks and other assets if Japan goes into a free fall over the next few weeks.

And the danger of such a panic may be greater than anyone could have imagined even a month ago.

One widespread myth is that there is some fundamental strength supporting U.S. stock prices as Japanese stocks crumble.

While the Tokyo exchange's 225-stock Nikkei average has plunged more than 21 percent this year - and today fell 3.13 percent, three days after the third-worst drop in its history. Meanwhile, the Dow Jones industrial average is off just 0.5 percent, and the Dow has been rising in recent weeks as the Nikkei has taken its worst hits.

From those numbers, one would assume that the United States has the stronger economy and that Japan has the weaker one.

Of course, just the opposite is true. So it is not inherent economic strength or weakness that is driving stock prices there or here.

Instead, Japan is being ravaged by fear of the unknown: Political leadership seems paralyzed, and the Bank of Japan's campaign to raise interest rates - largely to halt a slide in the yen's value - seems too little, too late.

The net effect, many experts argue, is that U.S. stocks are winning by default.

As the yen plunges and the dollar strengthens, U.S. investments look more appealing to Japanese investors and other foreign investors. If a Japanese investor bought $1 worth of stock here when it took 140 yen to buy a dollar, that same $1 worth of stock now is worth 154 yen. And if the stock has since risen in value, it is gravy for the Japanese investor.

Wall Street traders say they have not seen a dramatic surge of Japanese money into U.S. stocks in recent weeks, but they say there is no question that some of the yen from stock sales in Japan are making their way to the United States.

What seems to translate into great opportunity here because of Japan's chaos, however, also is fraught with risks for U.S. markets. The greatest risk is that Japan's market simply melts down.

The betting now is that Japanese stocks will continue to fall, but in an orderly fashion.

But could the decline rapidly turn into an uncontrolled sell-off? No one wants to think about that.

Most experts take the Bank of Japan's view that what is happening to Japanese stocks is a normal correction after nearly a decade of super-heated gains.

As rational as that may sound, however, many big investors in Japan are terribly distressed by the paper losses they have suffered. They're asking what should we do now?

If the selling spirals out of control, the United States could quickly feel it. A meltdown could produce massive paper losses in Japan that could force investors there to sell overseas assets to raise capital. And U.S. assets would be easiest to dump.

Even without a meltdown, a severe enough decline in the Japanese market could leave many Japanese investors feeling far less wealthy. "And if they feel less rich, we'll experience less in direct investment here - not just the West Coast but the entire country," said Kathleen Cooper, economist at Security Pacific Corp. in Los Angeles.

Finally, the longer-term risk for the U.S. stock market is worth keeping in mind, too: Once the Japanese market stabilizes, and the yen stops falling, our market no longer will win by default. At that point, U.S. stocks will have to stand on their fundamentals. And if our interest rates continue to rise, and corporate profits continue to slump, the fundamentals may prove very rickety.