By LARRY KANTER

Senior Reporter

Motion Syndicate Inc., a Santa Monica-based producer of three-dimensional animation and graphics for TV commercials and computer games, once relied on Japanese customers for almost 80 percent of its business.

Now, that number has been whittled down to about 50 percent. And with the Japanese economic outlook growing increasingly cloudy, the company is looking to reduce its reliance on Japan even more, said Andrew Bender, executive vice president.

"The television and advertising industries (in Japan) are really being hurt. Everyone is cutting back on funding," said Bender, adding that strong growth in the U.S. domestic market so far has offset problems in Japan. "We've been concentrating on building our American business."

Bender is not the only Los Angeles executive rethinking his Japanese strategy. The financial and economic crisis there is rippling through L.A. businesses, as companies large and small look to reduce their exposure to a limping Japanese economy. Others, meanwhile, are seeking to exploit the weakened yen while they can, snatching up new bargains in the Japanese marketplace.

Japan, which boasts the world's second-largest economy, is L.A.'s largest trading partner by far. More than $46 billion worth of Japanese imports and exports moved through the Los Angeles Customs District in 1997. About half of the $16 billion in U.S. exports to Japan were manufactured here in Southern California, according to the Economic Development Corp. of L.A. County.

As a result, economists warn, a sustained economic decline in Japan could have a disproportionate negative impact on Los Angeles.

"Anyone who is planning to export finished products or raw materials will see markets dry up. Profits are going to come under pressure," said Jack Kyser, chief economist of the EDC. "The longer Japan fiddles, the bigger the fire is going to be."

Exactly how long the fiddling will continue remains an open question. The United States intervened in foreign currency markets last week, temporarily bolstering the value of the yen. The move came immediately after Japanese Prime Minister Ryutaro Hashimoto pledged to take a series of emergency measures to stimulate the nation's sluggish economy, including tax cuts, public works spending and closing insolvent banks.

But the crisis mentality that spurred U.S. economic officials into action last week has yet to be embraced by their Japanese counterparts which casts a shadow over the U.S. economy and all of Asia, said Gregory Fager, director of the Asia department of the Institute of International Finance.

"The Asian downturn is being magnified by the weakness in Japan," said Fager. "The support these countries would expect to have from being in the backyard of the second-largest economy in world is just not there."

And that, in turn, could further impact Southern California, which is more closely tied to Asia than the rest of the nation through such industries as shipping, technology and entertainment, Fager added.

One place where the Japanese recession is likely to have a substantial impact is in the local real estate market, said Jack Rodman, a partner with the E & Y; Kenneth Leventhal consulting firm in Century City.

Japanese companies still control billions of dollars worth of hotels and office buildings here. Should the yen continue to weaken, those investors likely will look to unload those holdings in an effort to accumulate dollars, Rodman said.

"The Japanese likely will be forced to accelerate the disposition of their assets," he said. "You'll see added sales come into the market at a time when REIT values are down, and (U.S. REITs) won't necessarily be able to absorb all of that property. It could have an impact on the overall supply-and-demand balance in Southern California."

The Asian slowdown has exacerbated an already lopsided balance of trade through the region. Imports from Asia through the Port of Long Beach, the largest U.S. port facility, for example, rose 14 percent in May compared to the same month in 1997. Exports, by contrast, dropped 6 percent. And the number of empty shipping containers headed back to Asia jumped 94 percent.

"We've seen our exports suffer to Japan for quite a while now," said Don Wylie, the port's director of trade and maritime services. "As the dollar continues to strengthen against the yen, that has a very severe impact on trade with Japan."

One group benefiting from the weakened yen is local importers, who are able to get much more for their dollars.

Consider BCBG, a Vernon-based apparel firm that imports fabric from Asia and operates retail clothing stores in Japan. While sales in the company's Japanese boutiques have fallen 25 percent over the past several months, the company is purchasing much more of its textiles from Japanese producers, at a 15 percent to 20 percent discount. The strong dollar also has enabled the company to negotiate attractive leases for its Japanese stores.

"Sales is just one part of the business," said BCBG President Max Azria, referring to the positive effect of lower costs on his company's bottom line. BCBG has no plans to abandon Japan, he added.

Even some exporters are finding the dollar-yen fluctuations to be an advantage.

Peerless Systems Corp. in El Segundo, for example, produces operating software for manufacturers of printers, copiers, fax machines and scanners. More than half of its business is with large Japanese manufacturers, such as Ricoh Co. Ltd., Canon Inc. and Minolta Co. Ltd.

With the Japanese economy slackening, all those firms are looking to export their way to prosperity, aggressively targeting healthier consumer markets in the United States, Europe and Latin America, said David Fournier, a Peerless Systems vice president.

"We're seeing a boom as they try to capitalize on the rest of the world as their economy is down," Fournier said.

But can such individual successes offset the aggregate economic impact of a prolonged Japanese recession? That remains an open question, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University.

"In any situation, there are losers and gainers," said Adibi. "Those who are importers will be generating more business. But Japan is such a large economy. It's a huge volume of exports to be offset."

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