if you have no partner left to manage the world order of money and trade, can you have a policy of any kind?
Friday March 16 1:30 PM ET
U.S. Silence on Japan Woes Masks Official Concern
By Glenn Somerville
WASHINGTON (Reuters) - Silence from most U.S. official quarters on Japan's deepening woes masks real concern that its economic and political problems have the potential to drag U.S. prosperity down with it, analysts say.
While the Bush administration has chosen a deliberate hands-off approach to advising the world's No. 2 economic power what it might do to get back on track, anxiety about Japan is compounded because the No. 1 economy also has rapidly slowed.
``In the past, when we were doing so well, Japan wouldn't worry us that much,'' said economist Sung Won Sohn of Wells Fargo Bank in Minneapolis. ``But now, with our economy on the verge of recession, Japan has the capacity to push us into recession if trade flows are affected.''
Japan presents a policy dilemma for the United States, one likely to come more sharply into focus when Japanese Prime Minister Yoshiro Mori (news - web sites) visits President Bush (news - web sites) at the White House on Monday.
While the United States badly wants Japan to reform its moribund economy and to play a bigger role in sustaining global growth, it also needs Japan as an Asian ally and as a source of investment capital to finance Americans' free-spending habits.
Mori, deeply unpopular at home where political maneuvering to replace him is intense, sees much of his country's problems originating elsewhere, specifically in the United States.
``The nation's economic recovery has been stalled,'' Mori said on Thursday as a new task force started work on decade-old banking problems. ``Regarding the outlook, there are some worrisome factors such as the U.S. economic slowdown.''
U.S. Treasury Mute On Mori Visit
With Mori's political future likely short-lived, there are scant expectations for next week's meeting between him and Bush. U.S. Treasury officials declined even to talk about a possible agenda or to say whether Treasury Secretary Paul O'Neill will meet Mori separately.
The only Bush administration member who has spoken out about Japan is Secretary of State Colin Powell (news - web sites), who said on Thursday that meetings were going on among U.S. officials about Japan's fragile economy, which Powell said could pose a security threat to the United States.
Treasury would not even confirm that meetings about Japan had been held nor comment on whether O'Neill's attitude that U.S. officials should avoid urging policy directions for Japan was still Treasury's guiding rule.
Powell was direct, saying Japan's problems were too important for the United States to ignore.
``We are concerned about the Japanese economy, and it has been a source of meetings with the new team,'' Powell told the House of Representatives Budget Committee. He said the United States did not have a ``laissez faire'' attitude toward Japan and intended to give Mori ``the benefit of our thinking on this matter.''
But there may not be agreement on what to suggest to Japan.
``The big problem for U.S. policymakers is a looming global recession risk because both the United States and Japan are down,'' said Allen Sinai, chief global economist for Decision Economics Inc. in Boston. ``When you have the two largest economies in the world, one growing at about a 1 percent rate, the other one declining, the world is at risk.''
Japan was able to counter past periods of weakness by exporting more automobiles and other popular products to U.S. markets, an option less available with the U.S. economy also barely edging ahead.
U.S. Trade Gap Widens
Steady crumbling in Japan's yen currency, which weakened on Friday to 22-month lows around 123 yen to the dollar, worsens already-huge U.S. trade deficits with Asia's key economic power by making it more costly to sell American goods to Japan.
Part of the dilemma is that the United States badly needs Japanese investments, which finance most of the United States' huge current account deficits on trade that hit a record $435.4 billion last year.
Any sign that Japanese investors were losing their appetite for U.S. Treasury securities and for investment in stocks, bonds and branch-plant operations would be a flashing red light for American policymakers. Japan effectively lends money to the United States through such purchases, necessary since Americans save little or nothing.
Sinai said the United States should not hesitate to give Japan advice, ``as colleagues, not as critics.'' But he added, using a poolhall term to describe a difficult situation: ``The problem is that they've tried nearly everything, nothing is working, and now the country is really behind the eight-ball.''
Sinai said he could only suggest that Japan needs to keep easing interest rates, already at nearly zero, to keep adding liquidity to its banking system and to push its banks to lend to private-sector borrowers, coupling it with steep tax cuts.
``Ultimately, the best thing the United States can do is very, very aggressive action to revive the U.S. economy,'' Sinai said, putting more money in consumers' hands that means a more buoyant market for Japanese-made cars and other goods.
``That means more Fed action, likely more aggressive action than they have been talking about so far, and speeding up the Bush tax cuts which are really very small this year in relation to the total economy,'' he said. |
