WASHINGTON (AFX) - Deputy Treasury Secretary Kenneth Dam said will discuss Japan's problems with a deflationary economy and an overhang of bad loans in a four-day trip to Tokyo, starting tomorrow. "It's important to us and the world economy that Japan return to economic growth," Dam said in a press briefing before departing for Tokyo, where he will meet with Finance Minister Masajuro Shiokawa and Bank of Japan governor Masaru Hayami Friday. He said he will not be carrying prescriptions for Japan; "I'm not there to tell them what to do," but to engage in a dialogue, as the first senior US economic official to visit Japan for a "long period of time." Treasury Secretary Paul O'Neill was in Tokyo Sept 11 on his first trip to Japan, and cancelled meetings with senior Japanese officials to return to Washington following the terrorist attacks. Dam said he will raise the issues of deflation, which is "now getting to be substantial," although it will be up to the BoJ to determine which instruments to use in executing policy. "Price stability needs to be achieved," he said. Asked whether he will encourage the purchase of foreign bonds as a way to ease monetary policy, Dam said "We will discuss monetary policy with them. I think the instruments are up to the Japanese. We're not going to tell them how to conduct their monetary policy." "We're not going to encourage them to take any particular method of implementing monetary policy," he said. Dam added that he is "not going there to discuss exchange rates," which would be for O'Neill to address if appropriate. He will also discuss Japan's problems with bad loans and the need for corporate restructuring among the firms whose loans have turned sour. Dam will also meet Financial Services Agency director Hakuo Yanagisawa during the trip. The Deputy Treasury Secretary noted "obviously there are constraints" on Prime Minister Junichiro Koizumi's government in implementing a program to dispose of the bad loans. These are, "broadly speaking," political constraints, he said, and will be a topic for his bilateral talks. He would not comment on whether Japan should inject public money to help recapitalise the banks as they write off bad loans. Asked about whether Japan should adopt a second supplementary budget to provide fiscal support to its recessionary economy, Dam said he is "going to to discuss the whole question of fiscal policy with them."