Japan Must Open Its Markets, Hosokawa Says : Trade: Prime Minister seeks to avoid possible U.S. sanctions after talks fail, as key Tokyo stock index falls 3% on concern over U.S. retaliation.
Prime Minister Morihiro Hosokawa, seeking to head off possible U.S. trade sanctions, on Sunday said Japan should take unilateral steps to open its markets to foreign goods and reduce its huge trade surplus.
“The ball is now in Japan’s court,” Hosokawa told reporters traveling with him from Washington back to Tokyo. “We must use our brains. Japan will do what it can on its own.”
Hosokawa said he will meet today and Tuesday with cabinet members to discuss what steps Japan should take.
Meanwhile, a key index of Japanese stocks was down 3% at midday today on concern that the failure of last week’s trade talks between Tokyo and Washington will lead to retaliation against Japanese exporters, traders said. In midday trading, the benchmark Nikkei 225-stock average was off 590.46 points to 19,400.24.
Other Asian stocks also tumbled in midday trading today, dragged down by general uneasiness about trade issues, the U.S. dollar’s weakness and rising U.S. interest rates. Hong Kong’s Hang Seng index fell 371.63 points, or 3.2%, to 11,132.40. Taipei’s weighted index slumped 273.76 points, or 4.4%, to 6,020.37.
Expectations that the United States would seek to drive up the value of the yen were reflected on the Tokyo foreign exchange market, where the U.S. dollar finished today’s morning session at 106.05 yen, down 2.20 yen from Thursday’s close (Japanese markets were closed Friday). A strong yen makes Japanese exports more expensive and thus harder to sell, while foreign imports to Japan become more of a bargain.
It remains unclear what steps Washington might take in reaction to the breakdown in trade talks, but there have been indications that a first step in punitive sanctions could come as early as Tuesday. That is the deadline for a determination on whether Japan has lived up to a 1989 agreement on opening its cellular telephone market.
Some analysts see a risk that Japan and the United States may fall into a downward spiral of mutual retaliation.
The Nihon Keizai Shimbun, a leading economic daily, declared Sunday that “Japan and the United States are in a state of economic war in the wake of the breakdown of the framework trade talks.”
But most reaction in Japan has been more muted. When Hosokawa and President Clinton announced that they had failed to reach a trade agreement at their Friday summit, the dominant reaction of Japanese commentators, business leaders and government officials seemed to be satisfaction that the Tokyo-Washington relationship has reached a new level of maturity in which the two sides can bluntly disagree.
Hosokawa’s apparent intent is to carry out many of the steps offered by Japan during the trade talks. As part of a plan to open Japan’s insurance market, and for government procurement of medical and telecommunications equipment, Japan had offered a variety of deregulatory and open bidding measures to increase foreign penetration. Japan had also offered to facilitate cooperation between Japanese and U.S. auto makers to boost the import of U.S. automobiles and auto parts.
Hosokawa told reporters that an overall agreement had been “80% to 90% complete” when the talks broke down over the issue of numerical targets. Japan’s refusal to agree to targets reflected a lack of certainty that these steps would achieve the degree of progress demanded by the United States. It thus remains unclear whether Hosokawa is capable of taking steps that would have sufficiently dramatic effects in boosting foreign imports and reducing the trade surplus.
If there is any real risk of a debilitating breakdown in economic ties, the roots of such danger may lie in what continue to be profoundly different perceptions of who is at fault in the persistent trade imbalances.
Most Japanese, from top officials to ordinary citizens, do not believe that Japanese trade barriers are the main problem. Higher savings rates in Japan and insufficient efforts by American exporters--symbolized by the failure of U.S. auto makers to build small right-hand-drive cars for the Japanese market--get most of the blame for the trade imbalance.
Japanese confidence in the face of U.S. threats is based on a variety of factors. One is the hope that Tokyo can take enough steps on its own to show significant results.
Officials also believe that the two economies are so deeply intertwined that there is relatively little the United States can do in the way of sanctions that would not penalize U.S. companies and consumers just as much as Japanese exporters.
Punitive actions by Washington are seen as likely to violate international rules agreed upon in the recently concluded worldwide trade talks under the General Agreement on Tariffs and Trade.
Also, Washington is not fully united on the issue of what to do next.
The greatest fear in Japan may be that Washington will try to talk up the value of the yen. Many analysts think this is the only effective weapon in Washington’s possession.
But too high a yen could cut off any Japanese recovery. That would work counter to the Clinton Administration’s wish to see greater domestic Japanese demand pull in more imports.
Also, it may not be that easy to push up the value of the yen. With Japan still in recession, while the U.S. economy shows strong growth and rising interest rates, economic forces could force the yen the other way.
