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Fall in Land Prices May Follow Japan's Stock Price Drop

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WHEN Ichiro Isoda was forced to resign last Sunday as head of Japan's most profitable bank, the government claimed its biggest victim in a year-long assault on land speculation. His fall from the pinnacle of Japanese banking is seen by some analysts as a sign that Tokyo land prices may soon follow the nearly 50 percent decline in the Tokyo Stock Exchange this year.

Any rapid drop in land prices, however, would jeopardize Japanese investments abroad and send shock waves through the world economy.

Mr. Isoda, chairman of Sumitomo Bank, was the nation's leader in scooping up profits from a spectacular rise in land values since 1986. His philosophy that ``profit is everything'' drove management to make the bank No. 1 in the percentage of loans tied to purchases of property. Isoda resigned as a matter of ``moral responsibility'' after the government arrested one of his former branch heads last week for making $174 million in illegal loans to speculators. Such aggressive lending by Sumitomo and many other Japanese banks helped to drive up land prices in the country's major cities. In Tokyo, for instance, the average price for a square yard of land is now about $6,000.

Using their real estate as collateral, many companies and individuals borrowed heavily to invest in stocks, doubling the Nikkei Index over four years by the end of 1989. About 50 percent of Japanese corporations hold land without intending to use it, according to a recent National Land Agency survey. But speculation in both stocks and land has begun to create resentment among landless Japanese as well as anger in other countries. Japanese companies have made controversial buys of prominent foreign properties, the most recent being Pebble Beach Golf Course.

Many foreign analysts predicted that the ``bubble of over-inflated prices'' in stocks and land would eventually burst. They noted that the stock market's price-earning ratios were 3 to 4 times higher than in Western markets.

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