---- by CHRISTOPHER ANSTEY ---
WASHINGTON (AFX) - The meeting between President George W Bush and Japanese Prime Minister Yoshiro Mori is seen having little impact on exchange rates, although analysts noted the absence of any joint endorsement of a yen weakening.
"I'm not seeing a lot here...there was nothing specifically aimed at (the) foreign exchange market," said Carl Weinberg, chief economist at High Frequency Economics.
A joint statement released by the leaders did not mention foreign exchange rates, and a U.S. official told reporters the subject was "not the focus of the discussion between the two leaders."
"Expectations were pretty low to begin with," said Jay Bryson, global economist at First Union Corp.
However, analysts noted the absence of any joint endorsement of a weak yen, which had been subject to market rumors prior to the meeting.
The official also said Bush told Mori that Japan cannot export its way out of its current economic difficulties, and should rely on strong domestic growth. A White House official said Mori concurred with this view. But a Japanese official later denied it.
Weinberg explained that the Japanese are wary of the statement because of the potential for their exports to indeed expand and underpin Japan's shaky economy.
"Mori doesn't want to prejudge whether exports indeed will acclerate or be boosted by a weaker currency," he said. Bush's warning "would be no departure from the previous administration's statements," said Weinberg.
Analysts said the yen is still likely to decline further, despite Bush's message.
"I do believe the trend is still up for dollar/yen, although the yen won't be falling out of bed," Bryson said, adding "I would think it will test 130."
Michael Rosenberg, head of foreign exchange research at Deutsche Bank Securities, said "dollar/yen between 130 and 140 is now within easy reach."
The Bush administration is still likely to tolerate a weak yen, although not to directly endorse it, up to a point, analysts agreed. "I'm not surprised they didn't talk about (currencies) directly. That seems to be (the Bush administration's) approach...to leave it up to the market, and not guide it in any way," Bryson said. "It's all well and good for them to say (Japan should not rely on exports), but what really are they going to do," he said, concluding the Bush administration will not put "teeth behind that" and be prepared to buy yen to halt excessive weakness. Rosenberg said "I think it's more they would tolerate a weak yen, but they want (Japan to get) there with easy money (rather than through outright devaluation)."
Rosenberg noted the Bank of Japan re-established a zero-interest rate policy, while the Federal Reserve is expected to cut interest rates again tomorrow.
"That is something they have in common," he said, although both central banks are independent of their elected governments. "I don't think there's much they can do about" the poor state of Japan's economy," Rosenberg said.
Should the yen begin declining sharply over a short period, or fall to the point that other Asian economies are seeing negative side-effects, the Bush administration will be seriously concerned, Bryson said.
The yen's weakness, driven by negative sentiment on Japan's economy, is also unlikely to be affected by Mori's commitment at the meeting to revitalise the Japanese economy, analysts said.
Mori committed to "strengthen the financial system, including through effectively addressing the issues of corporate debt and non-performing loans," in the statement.
Tim Duy, senior currency analyst at independent analysis group The G7 Group, said this commitment carries little weight, given Mori is expected to resign shortly, and because similar statements have been made in the past by various Japanese leaders without effect. "I am increasingly sceptical ... over Japan's willingness to take action," he said.
Duy did see, however, some value in Bush's caution on Japan not relying on exports.
"If that's what he told Mori, that's a clear message against depending on the yen for export's sake - that this is not going to be acceptable to the U.S.," he said.
This will make Japanese officials "hesitant" to press the yen lower, he concluded.