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Japan calls for joint initiative on economic ties to US

Friendly foreign governments see a change in administration in Washington as an opportunity to improve their relationship with the United States.

So it is that the Japanese government is exploring the idea of proposing closer economic integration of the American and Japanese economies.

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The powerful Ministry of International Trade and Investment and the Ministry of Foreign Affairs are both seeking comment from trade experts in Washington on a new proposal: the creation of a consultative or study group of wise men from the two nations.

The two ministries differ somewhat on the specifics. Apparently Japan's government hasn't got its act entirely together.

Presumably a more precise proposal will be presented to the George W. Bush administration when it is in place.

Japan-US relations are important. In recent years, the American economy has been racing along while Japan's economy, the world's second-largest, has been loitering.

Like a commercial jet, the world economy flies more safely with at least two engines working at full power.

Now the US engine shows signs of sputtering. The Federal Reserve last week noted that "economic growth may be slowing further." So the prosperity of Japan could become much more vital to the world.

The Japanese initiative resembles somewhat the "open-market agreement" called for by Bruce Stokes, a fellow at the Council on Foreign Relations. In a book, "A New Beginning," published by the council last summer, he suggested a 10-year deal aimed at opening up the Japanese economy to more investment and trade.

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Tariffs are not much of a blockade to trade between the two nations. But bureaucratic regulations and informal decisions often keep the Japanese economy relatively uninviting to outsiders.

From Japan's standpoint, a new council might handle - in a less embarrassing way - the sometimes useful US pressure on Japan to implement economic and structural reforms. The US argues Japan needs to open up its financial, retail, agricultural, and other industries.

Economist Lawrence Lindsey, expected to be named Mr. Bush's chief economic adviser in the White House, has criticized the Clinton administration's use of gaiatsu, or foreign pressure, on Japan. "Japan-bashing by the administration has become a convenient way of appeasing some political constituency," he told the American Enterprise Institute Dec. 1. "In Japan, American tirades have become so expected that political discourse has moved away from creative solutions to domestic problems toward designing face-saving, and necessarily short-term, responses to American attacks."

Mr. Lindsey emphasized that he was not enunciating Bush foreign policy. But Japan experts suspect the new administration will be less apt to "bash" Japan about its markets, and more keen on reinforcing Japan as a security ally in dealing with China.

Many key Republicans are interested in "drawing a line in the sand on Taiwan," notes Adam Posen, an economist with the Institute for International Economics in Washington.

At the moment, Japan's economy shows signs of slowing. Real growth after inflation is running about 1 percent - a piddling pace. Another recession may lie ahead, warns Douglas Ostrom of George Washington University.

Some economists blame this meager growth in large part on the Bank of Japan's monetary policy. Even though Japan has declining prices, the bank raised interest rates in August to 0.25 percent from near zero. The fuel for economic expansion, the money supply, is growing slowly.

"Unelected" bank officials are accused of trying to force financial and structural reforms on the government and business, even though good firms go down with financially bad ones.

Most central bankers in the world think the Bank of Japan is "crazy," says Mr. Posen. It hasn't bought enough domestic bonds or printed enough currency to bring about a little inflation that would encourage Japanese consumers and businessmen to spend and ease the nation's debt problems.

Some blame the bank for the bubble in Japan's stock and real estate market in the late 1980s, as well as for the slothful 1990s.

Princeton University economist Paul Krugman has likened the bank to a driver who runs over a pedestrian. The driver looks back and says, "I am so sorry, let me undo the damage" - and proceeds to back up his car, running over the pedestrian again.

Because the bank hasn't acted forcefully, the government has attempted to boost the economy with spending programs that have caused huge deficits and a mountain of government debt.

Richard Katz, of the Oriental Economist newsletter in New York, argues that the real problem is "lousy consumer income," not monetary policy. Japan's companies have been cutting wages and jobs. And the Japanese have been getting almost zero interest on their relatively large savings.

Whatever, a husky Japanese economy would be most welcome.

(c) Copyright 2000. The Christian Science Publishing Society