First Japan Was Too Wet. Now It's Too Dry

Last year, Japan's long-awaited economic recovery was stymied by the coldest, wettest summer in 19 years. Sales plummeted for everything from beer and seasonal apparel to air conditioners and vacation packages. That helped depress growth of Japan's gross national product to just 0.1%. Many observers figured the return of a typically hot, humid summer this year would accelerate an incipient recovery.

So far, this summer has turned out to be the scorcher of many people's prayers, helping industries hurt by last year's cold spell. Ironically, though, the dry weather is so severe that several key industries are withering. Water shortages are parching comebacks in hardest-hit western Japan, where rainfall from April to mid-July was as much as 72% below normal. Analysts worry that could slow Japan's comeback. "If the drought is widespread and long-lasting, output could fall in some sectors, and hopes for recovery could prove premature," says Marshall Gitler, a strategist at Merrill Lynch & Co.

PAYING THE PRICE. Summer's dog days have already slowed the action at Nippon Steel Corp. It has had to stop economical, continuous operation of its hot-roll and sheet-metal lines at its Nagoya plant because there's not enough water to cool them down. To reduce heat, the lines therefore must be stopped intermittently. Nearby, Kirin Brewery Co. has idled about 70% of its vats and is short of water to wash its bottles. Yuji Horitani, a Kirin official, says shipments are up 20% this year but would be even higher uithout the water shortage. "The drought is the price we pay for the hot weather that's helping sales," says Horitani.

Across the Inland Sea on the island of Shikoku, Yoshida Kogyo Co., which owns a plant that makes industrial fasteners and building materials, has cut production of aluminum-shutter parts by 45%, as the water shortage prevents it from mixing coatings. Yoshida Kogyo has also transferred 10% of its workforce. Damage extends to other industries as well, from textiles to automobiles.

For Japan's troubled agriculture industry, the drought has had a limited impact. Rice production is mostly in the east and north, where rainfall has been near normal. But if the drought expands, Japan could face its second straight disastrous rice harvest. The August forecast is gloomy, with precipitation levels anticipated to fall below normal.

CLEAR SKIES. But for many businesses, the drought's costs are worth paying. Demand for air conditioners is up 17% from last year. Matsushita Electric Industrial Co., the largest maker, reports a 50% jump in shipments. Apparel makers such as Renown Inc., which makes lightweight women's clothes, are basking under the clear, hot skies. Purveyors of broiled eel, which Japanese gastronomes believe cool one's body, have spiked wholesale prices around 30%, to about $25 a kilogram. The willingness of many Japanese to dish out money could prolong a consumer-spending boom.

That's small comfort to those hit by water rationing. Some Japanese are even praying for the approach of typhoons, simply to get more moisture. But given the extreme weather conditions their country has endured in the last year, the Japanese might well be better off if those prayers went unanswered.

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