Japan Urged to Reform Economy

U.S. Ambassador Mike Mansfield, acknowledging that a complete opening of Japanese markets to foreign goods would only slightly dent Japan’s trade surpluses, has urged Japan to undertake broad economic reforms in taxes, wages and other areas to promote imports.

In recent speeches delivered in Tokyo and Kyoto, Mansfield said that, if Japan opened its markets completely, it would result in an increase of no more than $10 billion in U.S. exports to Japan--about a fifth of the U.S. trade deficit with the Asian nation last year.

By itself, he said, opening the Japanese markets “will not solve our trade problems.” What is needed is “structural changes that will bring Japan’s economy into harmony with the rest of the world,” he said.

Mansfield noted that Prime Minister Yasuhiro Nakasone has called for precisely such reform and described it as “the most crucial action item on Japan’s economic agenda.”

According to private economists, he said, Japan’s global trade surplus for fiscal 1986 could be as much as $70 billion, compared to $56 billion in calendar 1985.

“Too much of Japan’s growth is based on exporting,” he said, citing real growth of 49.2% in exports last year, compared to an increase in private consumption at home of only 2.6%. He complained that, since 1980, Japan has become more reliant on exports for growth.

Mansfield ticked off a number of reforms that he said the United States would like to see in Japan.

He said lower income taxes and higher wages are needed to spur consumption and correct what he called a lag in disposable income. Government economists acknowledge that, in recent years, wage increases have not kept pace with the growth in productivity.

“Most of the large trading profits enjoyed by Japanese companies have not been passed on to the domestic economy in the form of higher wages or increased investment,” Mansfield said, “but have been sent abroad to take advantage of higher interest rates.”

Japan also should allow its citizens to deduct from their income tax interest payments on mortgages, he said. Lack of such deductions, he said, means that most families must save for large down payments on their homes.

But tax exemptions designed to stimulate savings, which now allow any Japanese to earn tax-free interest on savings of up to 9 million yen ($50,000), should be eliminated, he said.

Building up Japan’s infrastructure--transportation, housing, recreation facilities, schools and environmental protection--would benefit the Japanese consumer and fulfill Japan’s international responsibilities, he said.

Mansfield complained that a highly publicized “buy foreign” campaign undertaken last April by Nakasone to persuade Japan’s consumers and large corporations to buy more foreign goods has produced “much thunder and little rain.”

“So far,” he said, “results have been disappointing. . . . In response to the Japanese government’s call, many Japanese firms have issued press releases professing good intentions, (but) in 1985, Japanese imports of American manufactured goods rose by less than 2%. By contrast, in 1985, Japan’s manufactured goods exports to the United States increased by more than 30%. Japan must do better than this.”

It was the first time that a U.S. official had criticized the results of Nakasone’s buy-foreign program.