18 February 2002, 09:26 OUTLOOK Bush not likely to press Japan on economic problems during visit
---- by Christopher Anstey ----
WASHINGTON (AFX) - President George Bush is not likely to press
Japan in any specific way to act on its economic problems during his
two-day trip to Japan, starting Sunday, analysts said.
"Economics is widely seen to be on the agenda, but not as much as
the popular press suggests," said Carl Weinberg, economist at High
Frequency Economics.
Bush's visit has been seen by the foreign exchange market as an
opportunity for further pressure on Prime Minister Junichiro Koizumi to
deal with his country's banking and deflation problems.
His visit is "seen as a spur to the current round of policy
activity," said Lehman Brothers economists, noting a growing debate
among Japanese policymakers on the question of a potentially large
injection of public funds into the banking sector to help dispose of
the non-performing loan overhang.
However, Weinberg said much of the activity in Tokyo is related to
the coming end to the current fiscal year.
March 31 "is what all the flurry is about," he said, as banks will
have to release balance sheet information that is likely to show
continued hemorrhaging in the financial sector of the world's
second-largest economy.
Bush is also not likely to address the foreign exchange issue,
despite the White House having come under pressure from the US auto
industry to act against the cheap yen and perceptions that Japan has
been intentionally driving its currency lower.
"My impression is that they've pretty much brushed off the Detroit
Big Three," said Edward Lincoln, senior fellow at the Brookings
Institution and former economic counsellor at the US Embassy in Tokyo.
Bush will not be bringing senior economic advisors with him on the
trip, which is expected to dwell more on foreign policy and security
concerns than on Japan's economic problems.
Neither Treasury Secretary Paul O'Neill nor chief presidential
economic advisor Lawrence Lindsey will be on the trip, the White House
said.
After Japan, Bush will go on to visit South Korea and China.
Analysts noted that remarks made yesterday by National Security
Advisor Condoleeza Rice on Japan were in keeping with last weekend's G7
finance ministers' meeting, which concluded that it is largely up to
Japan to act on its own problems.
"Look, it is really up to the Japanese to design their economic
program. It is no secret that there are a number of problems that the
Japanese economy faces," Rice said in a pre-trip press briefing.
Rice said that while Bush "may talk specifically" about Japan's
economic problems, "the president will do that privately."
Analysts noted that O'Neill already delivered a clear message to
Japan, in a trip to Tokyo last month.
O'Neill switched the administration's tack on Japan, by ultimately
deciding to "lecture" the country on its need to avoid relying on
exports and public works spending, and instead focus on ending
deflation and the non-performing loan problem.
Other officials have also illustrated the risks seen by the US if
Japan fails to turn its economy around, analysts noted.
"Japan has been suffering economic woes for many years and there is
danger that its important leadership role may be undermined if its
economy deteriorates further," said James Kelley, top State Department
official for Asia, in remarks to a Congressional hearing yesterday.
Bush will most likely simply reinforce his support for Koizumi's
reform program, Lincoln said.
Bush's "approach will be to say to the Japanese public and
politicians: 'Koizumi is your man, he's your prime minister, he's a
reformer, but you've got to get with the program and get these things
implemented.'"
Kelley echoed this expectation. Koizumi "has sound plans and needs
support, not pressure from the United States," he said.
Jin Saito, Vice President at the independent analysis organization
the G7 Group, noted that there is concern about appearing to put
pressure on Koizumi at a sensitive time when his domestic popularity
rating has been dropping.
Given that there is little in the way of an attractive, reformist
alternative to Koizumi in domestic Japanese politics, there is an
impluse to support Koizumi, rather than criticise the slow pace of
reform implementation, analysts said.
However, Lincoln warned that if Bush "is too mild, then the LDP and
Mr Koizumi will interpret that as blanket support for everything he's
done, even though... I think it's very inadequate." He spoke at a
Brookings press briefing on the trip.
"This is not a moment in time that the administration would like to
be seen undermining a prime minister who appears to be basically the
only choice at the moment," Lincoln concluded.
Toshiyuki Suzuki, chief economist at Sanwa Bank in New York, said
close attention will be particularly paid to Bush's speech to the
Japanese Diet, for references to Koizumi's economic agenda.
There is "the potential for the week to be quite exciting," if Bush
were to unexpectedly press Japan on the need to inject public capital
into the banks and avoid a full-blown crisis, Suzuki said.
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