Worldo Cupo may prove temporary distraction

For a long time it seemed there was little to cheer about in Japan courtesy of the worsening economy and growing political disenchantment.

Arsenal's Junichi Inamoto's goal against Russia changed all of that last week. "Worldo Cupo" fever has hit town and the Japanese have taken the event to their hearts with gusto. For a nation of baseball fanatics, the sense of national unity now driving forward the Japanese soccer team, is truly remarkable to observe here.

Remember when Ray Houghton knocked home the winning header in the Heisel stadium against England in 1988? Japan have had their equivalent and the celebrations are still ongoing.

Social historians in Ireland have used the Charlton years as a starting point for the New Ireland that emerged to top the European growth tables in the 1990s. Japan's importation of French soccer coach Phillipe Troussier to knock the national team into shape, is emblematic of wider changes in the world's second largest economy as it attempts to claw its way out of the red.

While it's very early to be talking about a full recovery for the Sickman of East Asia, government claims of a "bottoming out" of the third recession in 10 years are tentatively backed up by reports of a 1.4 per cent GDP spurt in the first quarter of 2002.

In January to March exports surged 6.4 per cent, up for the first time in six quarters, while imports remained flat. And in April flagship company Toyota announced pre-tax profits of more than one trillion yen on the back of the relative strength of the dollar.

But elsewhere in corporate Japan things are looking less positive as the company earnings season comes to a close. NTT, the telecommunications group has posted the largest loss by an industrial Japanese company, Y812 billion. Last year the 1,057 companies in the Topix index - excluding financial stocks - made an aggregate loss for the first time since the 1980s.

To some extent, the losses reflect cyclical problems that have affected companies globally. The integrated electronics groups, for example, were hit by the technology downturn, particularly in semiconductors and liquid crystal displays, where sharp price declines slashed profits.

NEC's electronic devices division, for example, incurred an operating loss of Y148billion. The group's decision, announced last month, to spin off its semiconductor division - one of its core businesses - highlights the extent of the pain. In the second half of last year, orders for telecoms equipment all but dried up, says Koji Nishigaki, president.

Neither were Japanese technology companies immune to the bursting of the telecoms and technology bubble. NTT's loss stemmed in large part from its overseas forays, which cost it Y1,407 billion in write-offs of investments in a web-hosting company in the US and mobile telecoms operators elsewhere.

Of greater concern is that the losses also stem from structural problems and the failure of many companies to restructure their operations aggressively.

Consequently, while last year's losses reflect heavy restructuring charges, the over capacity and high labour costs that have hurt Japan's corporate competitiveness continue in many sectors. Daiei, the troubled retailer, still has 40 loss-making stores that together lost more than Y10 billion.

Those companies like Toyota which bucked the trend benefited from the weak yen. And with the dollar declining, analysts are negative about sustained growth through exports while domestic demand is still weak. The banking crisis also remains unsolved.

The real economic benefits of hosting the world cup are probably fairly insignificant when set against this backdrop.

Japan has reportedly spent some $10 billion pump-priming in the last five years by building seven new stadiums and infrastructure ahead of the competition. It is claimed that $25 billion will be injected into the Japanese economy because of the tournament but this has been widely disputed.

Many of the venues are sprawling multi-function sports complexes that leave the Bertie Bowl in the shade. The fear is that the local authorities, who, in the end, were made fork-out for them, will find themselves heavily indebted with massive stadiums that may never be sold out.

Hosting "Worldo Cupo" was meant to showcase Japan and was part of a wider plan to revive the economy. As Japan failed to qualify for USA 1994, Korea decided to throw its hat into the ring to give their former colonial masters a run for their by now dwindling surplus cash and boost their own economy with foreign investment. The irony is that Japan needs direct foreign investment more than Korea which has bounced back from the Asian crisis better than the Japanese.

Still, signs of change have been in the air recently. One of the buzz words in the press here is "entrepreneur" and there is a widespread recognition in the business community of the need for greater degrees of corporate governance in the shape of more competition and less government bail-outs.

But attempts by Prime Minister, Junichiro Koizumi, to privatise the post office have highlighted the obstacles he faces. The post office has become the sacred cow for what his party opponents in the LDP, see as his attempted butchery of the Japanese "Way". If rolling back the gargantuan state system is the way forward, the old guard are not convinced, especially with their seats in the balance if privatisation proceeds.

With all eyes on the opening round, Koizumi announced the second part of his reform/rivitalisation plan , in what looked like a bid to grab attention from the footballing demi-gods.

Anyone bothered enough to take notice realised that this involves tax cuts for companies and possible tax hikes for low income earners, who seemed more preoccupied with jamming the telephone system to score a ticket for the vital game against Russia.

Other measures include increasing foreign investment by opening up further their domestic market of 120 million people. Companies attracted here by new incentive schemes to be added to those already in place, can now look forward to less corporate tax, currently 40 per cent, under the Koizumi administration plan.

Of course that is if he survives in office long enough to see his plans come to fruition. Koizumi seems more and more like yesterday's man with his popularity rating down from an historic high of more than 80 per cent in January to 42 per cent this month.

Just a few short months ago his miniature doll hung from mobile phones throughout Tokyo. Now, the new name in town is Beckham.

- additional reporting Financial Times service