US `concerned' over Japan's stagnant economy
Linda Sieg
Tokyo, Jan 20: US ambassador to Japan, Thomas Foley on Tuesday urged Japan to do what was needed to ensure its stagnant economy recovered and warned that Tokyo's rising trade surplus was already a cause for concern in Washington.But Foley shied away from commenting on recent reports that Tokyo has promised Washington that it would craft as early as April an extra budget that could feature more tax cuts, steps to boost imports and more public works spending. ``We believe a recovery in the Japanese economy is extra-ordinarily important not only for itself, but to improve the general economic situation in Asia,'' Foley said ahead of a speech at a media luncheon. ``Japan is a key country. There is a need for Japan to be an engine of growth.'' Foley said he welcomed previously announced stimulative steps, including a one-off two trillion yen ($15.5 billion) income tax cut, but also urged Japan to consider doing more. ``We hope there will be consideration given, perhaps, in the future, to any other steps
that may be deemed necessary to adequately move the Japanese economy forward,'' he told the media luncheon. But asked about reports that deputy cabinet secretary Fukushiro Nukaga had promised US officials fresh stimulus steps would be forthcoming, Foley said he had no information about the matter. He was far less coy, however, when it came to targeting Japan's bulging trade surplus as a cause of trade friction. ``Regardless of how strong the US economy is -- and I believe it continues to be very, very strong -- the rapid growth in the US trade deficit will be, already is, a growing issue,'' he said. Hopes have blossomed that prime minister Ryutaro Hashimoto, faced with a worsening economic climate and mounting political pressure at home and abroad, is laying the groundwork for steps to boost the economy in the next few months. But Hashimoto, while pledging to be ``flexible,'' has stopped short of bold public promises to take fresh action. ``I will be carefully watching the markets, which are
becoming increasingly sensitive,'' he told a parliamentary panel on Tuesday. But he added the government would take steps such as getting timely approval for budgets and already planned tax cuts so that further stimulus would not be required.Japan's economic recovery has stalled, and some say slipped into recession, after being battered by a tight fiscal regime since April. Worries over Tokyo's financial system following a series of company failures as well as regional currency turmoil have added to the economic gloom. In a sign of growing official recognition that Japan's economy is in trouble, the central bank said on Tuesday that the economy was likely to remain stagnant for a while and was vulnerable to setbacks. The Bank of Japan said in its latest monthly report that the effects of a slowdown in domestic demand, especially in household spending, were spreading to production, employment and incomes. ``In these circumstances, the possibility of the emergence of further downside risks should be
carefully observed,'' it said, adding that a prolonged adjustment in Asian economies was one such possible risk. Foley declined to prescribe specific fiscal steps that Japan should take, but repeated America's oft-heard recipe for economic success - deregulation and open markets. ``If I have a message that I want to give to the Japanese government, it is that we think market opening efforts are in our interests...but we think fundamentally they are in the interests of Japanese consumers, Japanese suppliers, Japanese employees, and the Japanese economy,'' he said.The Bank of Japan report also said that given the slowdown in the pace of growth the economy had become less able to withstand additional external shocks. ``In these circumstances, the possibility of the emergence of further downside risks should be carefully observed," it said. The report added that a prolonged adjustment in Asian economies was one such possible risk.Special income tax cuts announced late last year were likely to boost Japanesehousehold spending, but the economy was likely to remain stagnant for a while as more and more sectors struggled to work off bulging inventories and capital spending was expected to slow, the report said.Japanese stocks and the dollar shrugged off the report, as the markets were more preoccupied with rising expectations of additional economic stimulus steps by the Japanese government. BOJ governor Yasuo Matsushita told a budget committee meeting of the Lower House of parliament on Tuesday that the central bank's low interest rate policy would help strengthen the economy for a while, as the policy helps support Japanese firms' profits as well as employment and wages.But some economists said there was still a gap between Japan's economic reality and the central bank's views. ``They are not pessimistic enough yet. They are trailing (reality) at a certain distance, " said Peter Morgan, senior economist at HSBC securities Japan. Under new procedures implemented this month to make the BOJ's policy-making
process more transparent, the BOJ's monthly report was released just two days after its approval at the first monthly meeting of the BOJ's policy-making board.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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