Nakasone Foresees $5-Billion Trade Surplus Reduction : Says Japan’s New Program Will Fulfill His Promise to Reagan to Spur Domestic Growth

Prime Minister Yasuhiro Nakasone said Friday that a program his Cabinet approved earlier in the day will increase Japan’s economic growth by 2% in fiscal 1987 and reduce its trade surplus by between $5 billion and $6 billion.

Nakasone told reporters that this will fulfill the promise he made to President Reagan to stimulate domestic growth. The two leaders met in Washington on April 30 and May 1.

The program approved Friday will increase government spending by 5 trillion yen, or $34.7 billion, and reduce taxes by 1 trillion yen, or $6.9 billion.

“I will be able to go to Venice and explain with pride the . . . measures we have taken,” Nakasone said, referring to the seven-nation economic summit conference scheduled to begin June 8 in Italy.

Brake on Yen

He said the program “carries enough strength to hold down appreciation of the yen,” which has gained 68% in value against the dollar in the last 20 months and in the process cut into corporate profits and dampened investment.

On the Tokyo Foreign Exchange Market, the dollar closed Friday at 144.15 yen, its highest level since April 9.

The steps taken Friday constitute the fourth, and by far the largest, pump-priming program announced by the Nakasone government. Unlike the earlier programs, none of which produced the effects forecast by the government, Friday’s appeared to spell an end to a policy of severe budget constraints that Nakasone has followed since he became prime minister in 1982.

Nakasone has said publicly that a standing requirement for government agencies to reduce their budget requests every year will be lifted when work on the fiscal 1988 budget begins this summer.

Faith Urged

Government officials went out of their way Friday to urge foreign critics to put faith in the new program. Hiroshi Hirabayashi, deputy director of the Foreign Ministry’s Economic Affairs Bureau, told reporters the new program “is completely different” from the last one, which was announced last Sept. 19. That program, though described as a stimulus, was carried out at a time when government spending was being reduced, not increased.

Kunio Miyamoto, deputy director of the Economic Planning Agency’s Coordination Bureau, urged skeptics to take a close look at the new measures. He said that while Japan will be directly stimulating domestic demand by 1.8% through its new measures, tax cuts planned by West Germany in the two years ahead will add only 0.7% to West German growth.

According to Japanese economists, Nakasone’s new program is free of the cosmetics that inflated the earlier programs beyond their actual economic impact. But doubts emerged immediately that it will go as far as Nakasone says.

Unexplained Prediction

Nakasone offered no explanation--nor did other officials--for the forecast that Japan’s $101.4-billion global trade surplus will be reduced by $5 billion to $6 billion in fiscal 1987, which ends next March 31. If last year’s pattern prevails, imports will increase by only $3.2 billion to $3.7 billion under the measures announced Friday.

In 1986, Japan imported goods valued at only 6.4% of its gross national product. The same percentage of the 6-trillion-yen program announced Friday, including tax cuts, would produce only $2.7 billion in additional imports in fiscal 1987. But an additional $1 billion in imports is expected to result from a special program of government procurement of foreign products, also announced as part of the package.

Excluding the tax cut, which many Japanese families are expected to divert into savings, but including the government purchases, the program will induce only $3.2 billion in additional imports if last year’s import pattern prevails.

Need for Activity

A U.S. diplomat here said American officials in Washington recognize that additional domestic demand does not produce as much of an increase in imports in Japan as in the United States. Nevertheless, he said, U.S. officials believe that a more active Japanese economy is needed to encourage export-oriented manufacturers to restructure their production in order to sell more at home.

Public statements by U.S. officials in Washington have often portrayed growth in the Japanese economy as the ultimate solution to the U.S.-Japan trade imbalance, which last year reached $58.6 billion.

Despite Nakasone’s forecast of a 2% increase in growth, the government made no change in its forecast of last December for real growth of 3.5% in fiscal 1987.

Although less than half of the $34.7-billion spending stimulus will come directly from spending by the national government, officials cited additional expenditures by government corporations and local governments.

New Figures Due

A detailed breakdown of spending will be spelled out after Nakasone’s Cabinet completes a supplementary budget that is to be presented to a special session of Parliament that Nakasone plans to call in early July.

After Parliament approves the supplementary budget, Nakasone said, a bill will be submitted aimed at reducing taxes by “not less than $6.9 billion.”

Parliament recently scrapped a Nakasone proposal for reducing income taxes in exchange for a 5% value-added sales tax. A consultative body made up of opposition and ruling party lawmakers has been set up to debate a new tax reform program.