U.S. Tries Softer Delivery to Prod Japan to Action
Behind a veil of deference, praise and joviality, the United States on Friday delivered a needle-sharp message to Japan: Your economy is deteriorating and you need to step up your game, for the good of Japan, Asia and the world.
“Prospects for Japan look worse than they did a few months ago,” Lawrence H. Summers, deputy Treasury secretary, told a packed news conference in Tokyo. “It is crucial to the efficacy of any other policies to promote growth [and] to remove the bottleneck that is presented by an economy mired in debt.”
On the one hand, the senior U.S. official’s diplomatic phrases and overt recognition of Japan’s efforts provided the clearest example yet of Washington’s switched gears in approaching its Asian ally.
The United States recently dropped its sharp tongue-lashings in favor of “constructive” prodding--out of frustration that the bashing wasn’t working, or a better understanding of Japan’s preferred method of taking medicine, or both.
Summers, whom the Japanese media earlier dubbed an “end-of-the-century MacArthur” for his hard-charging ways, clearly seemed intent Friday on showing his kinder, gentler side.
Rather than criticizing the Japanese government’s official 0.5% growth forecast for 1999--a figure most private economists find overly optimistic--he chose to urge on Japan.
“That’s a possible outcome,” he said. “And I hope great determination will be applied to make it an actual outcome.”
Behind the smooth deflections, however, Summers still delivered several no-nonsense messages: Japan’s economy is looking worse, its banks are still undercapitalized, its mountains of bad assets should be sold off, the government’s fits-and-starts policy approach is doing little to rebuild confidence, and the clear priority should be on domestic growth, not exports.
The markets seemed to agree. The yen weakened to 120.30 to the dollar late Friday from the 119.85 level seen Thursday in New York. And Japan’s benchmark Nikkei stock average fell 102.91 points Friday to close at 14,367.54.
Japanese officials, meanwhile, seem to welcome the softer U.S. approach. “When Japan formulates its economic policy in line with American requests, it has to explain politically that these are done for Japan, not because we’re being pressed by the United States,” said one Japanese government official.
Private economists, meanwhile, seem, if anything, gloomier than Summers about Japan’s prospects. “It’s pretty depressing,” said Chris Calderwood, Tokyo-based chief economist with Jardine Fleming. “I think it’s right to be a pessimist.”
Japan has taken several positive steps in recent weeks. Fifteen of Japan’s top banks are in line to receive $62.5 billion in public capital, two large insolvent banks are now under government control, and the new watchdog Financial Supervisory Agency has unearthed problems rather than swept them under the rug.
Japan’s policy gears also seem to be grinding more quickly on economic issues--as evidenced by the relatively quick decision last week to drop inter-bank interest rates to 0.15% from 0.25%.
But economists fear Japan waited so long to get started and was so tepid initially in adopting fiscal and monetary policies, that it has sharply reduced its options.
Interest rates are now close to zero, severely limiting the central bank’s ability to further ease monetary policy. And a dribble-dribble approach to public works spending--rather than a sharp, steady flood--has blunted much of the momentum that might have spurred consumer and corporate confidence.
“The wait-and-see approach by the Japanese government has been very dangerous,” said Hiroshi Kuribayashi, economist with Barclays Capital. “I’m very pessimistic.”
Ultimately, the stakes are huge, not just for Japan but for the rest of the world--which can’t rely solely on the U.S., Summers said. It’s a matter of balance, he said.
“We can not assume the global economy will be able to fly permanently on a single engine,” Summers said. “A global economy simply cannot be successful without a successful Japan.”
