Weak for Exports.(Japan's dependency on American markets)

It would be easy to mistake Miyata for a boomtown. Located on Japan's southernmost main island of Kyushu, its major employer, a 10-year-old Toyota Motor Corp. assembly line, looks set to churn out 267,000 new vehicles this year--a tally equal to its record-breaking performance in 2001. The plant employs about 2,000 people and makes top-selling Lexus sedans and sports-utility vehicles. Yet there's a worrying statistic hidden in Miyata's numbers: the plant's export ratio has risen from 52 percent in 1998 to 91 percent this year--and most of those cars are headed to American shores.

The problem is that Japan's export giants are counting on the United States at precisely the wrong time. These powerful multinationals-- about the only functioning elements in the country's moribund economy-- are all threatened by the same new math: strong yen + weak U.S. economy + Iraq = trouble. The equation not only helps explain the fact that Japan's exports fell for a fourth straight month in September. It also accounts for why pessimistic investors have recently shed even the best Tokyo blue chips, heaping more downward pressure on a stock market already saddled with debt-laden corporate "zombies" and wobbly banks. Diminishing exports, economists now forecast, could push Japan back into recession by Christmas. "If the U.S. economy turns down again," says Shigeki Maeda, a senior analyst at the Japan External Trade Organization in Tokyo, "Japan's major manufacturing groups will surely suffer from the impact."

Exporters from Hangzhou to Ho Chi Minh City harbor similar apprehensions about the faltering U.S. economy. Yet the stakes are highest in Tokyo because Japan's economy is such a basket case. Its latest recovery was largely export driven. Overseas sales, which make up just 10 percent of GDP, accounted for fully half of all growth--the bulk of it derived through exports to the United States. According to the financial news service Bloomberg, up to 90 percent of Honda Motor's operating profit comes from North America. Its tally for Toyota is 70 percent (a figure the company disputes). Lofty dependency ratios likewise dog Japan's other auto, machinery and electronics makers, exposing one and all to a volatile yen-dollar exchange rate and tapped- out U.S. consumers. "I have a feeling it's going to be tough on them," says Norihiko Kamada, a fund manager at Tokyo's Chuo Mitsui Asset Management, referring to ...