U.S., Japan Split Over Rate Request

U.S. Treasury officials and their Japanese counterparts ended two days of talks today sharply divided over a U.S. request that Japan move quicker to lift interest rate controls.

U.S. Undersecretary of the Treasury David C. Mulford said the Japanese refusal to provide a timetable for deregulating interest rates on bank deposits within one year could push U.S. regulators toward imposing limits on Japanese financial activities in the United States.

Japan’s reluctance to promise faster liberalization could aid passage of legislation being considered in Congress that calls for retaliatory action against foreign financial firms in the United States if their own governments do not give U.S. companies reciprocal treatment, he said.

“Rapid action to complete the deregulation process in Japan would avoid what otherwise will become an area of serious political conflict,” Mulford said.

“The Treasury is in the process of preparing a national treatment study for the U.S. Congress on the status of U.S. financial firms in foreign financial markets,” he said. “As of today, it will not be possible for the U.S. Treasury to give a positive report on the Japanese market.”

Vice Minister of Finance Makoto Utsumi said the two sides agreed on the goals for complete liberalization of Japan’s once strictly controlled financial markets but clearly disagreed on the timing.

He likened the process of reform to mountain biking:

“The problem is we are now facing the final stage of liberalization, and the slope is steeper, the problems become more serious. We have to complete the process without causing a heart attack,” he said.

Utsumi declined to elaborate on the reasons why Japan could not provide a timetable for lifting interest rates but said the ministry plans to eventually lift all controls on rates for bank deposits.

Analysts say the ministry faces strong opposition to interest rate deregulation from small-and medium-size banks that are already facing difficulties because of higher interest rates.