Nakasone Angered by Yeutter Talk

Prime Minister Yasuhiro Nakasone lashed out today at a senior Reagan Administration official’s public criticism of a Japanese sales tax plan, saying the American “lacks understanding” of the proposal.

Other officials charged that U.S. Trade Representative Clayton K. Yeutter’s remarks at a Senate Finance Committee hearing Thursday in Washington amounted to meddling in Japan’s internal affairs.

Nakasone’s proposal for a 5% nationwide sales tax, which has drawn unprecedented public opposition, is part of a tax reform program to boost the domestic economy that the United States and other nations have been urging to reduce Japan’s reliance on exports.

Domestic Growth

But Yeutter appeared to indicate that the sales tax, a modified value-added levy, would inhibit domestic growth.

“I find it incomprehensible that Japan is seriously considering a value-added tax at this point in time,” Yeutter said. “It seems to me that it is just the wrong medicine.”

Japanese dailies gave wide play to the remarks, in which Yeutter also expressed dissatisfaction with Japan’s effort to trim its trade surplus with the United States, a record $59 billion last year.

“He doesn’t know that a tax reduction came before (the sales tax),” Nakasone told reporters. “He lacks understanding. He should increase his study of Japan’s tax system reform.”

Tensions in Trading

Chief Cabinet Secretary Masaharu Gotoda called the remarks “regrettable” at a time when trade tensions are heightening. Last Friday, President Reagan announced heavy tariffs on Japanese electronic products in a dispute over semiconductor chips.

“The tax is our country’s internal problem,” Gotoda said. “It is questionable on what kind of understanding Mr. Yeutter based his remarks.”

The criticism appeared to have enraged Japanese leaders as the latest U.S. broadside in a stiffening international and domestic economic battle.

Popularity Ebbs

The sales tax plan follows cuts in personal and corporate income taxes aimed at boosts in spending. But public outcry has plunged Nakasone’s popularity to its lowest ebb and led to an opposition boycott in Parliament of deliberations on the national budget.

Japanese newspapers reported today that Nakasone had decided to compromise on the tax plan by delaying its implementation until next year, hoping to win passage of the budget before he travels to Washington April 29 for talks with Reagan.

The Japanese are also moving to head off sanctions over computer chips. High-level talks are expected in Washington next week.

But the Japan External Trade Organization, a quasi-governmental trade body, reported today that U.S. Customs Service offices began Tuesday to hold up clearances on some Japanese goods in preparation for the measures.