Japan Offers No Solution To Crisis - NY Times - Sep 5,98
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Filed at 4:34 a.m. EDT
By The Associated Press
SAN FRANCISCO (AP) -- The Japanese may not have offered new answers to a deepening global financial crisis, but Federal Reserve Chairman Alan Greenspan said the world's most powerful central bank was growing concerned enough to consider cutting U.S. interest rates.
A meeting Friday between Treasury Secretary Robert Rubin and new Japanese Finance Minister Kiichi Miyazawa had been billed as a showdown. At issue, as President Clinton put it this week, was the need for a ''profoundly important'' discussion about Japan more aggressively shoring up its economy.
The talks, however, essentially covered well-worn territory, both sides said: Japan insisted it was moving as fast as it could to jump-start an economy mired in the worst recession in 50 years; U.S. officials complained that Japan needed to act more boldly to spur growth for its troubled Asian neighbors.
Stealing the show was Greenspan, who joined Rubin and Miyazawa for dinner after a speech in Oakland. Analysts said Greenspan's remarks provided a clear signal the Fed stood ready to cut interest rates to ensure that the U.S. economy is not dragged into a recession.
''It is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress,'' Greenspan said. ''As dislocations abroad mount, feeding back on our financial markets, restraint is likely to intensify.''
Greenspan noted that in the spring and the early summer, Fed policy-makers still were more worried about the risk that inflation could get out of hand and were poised to raise interest rates to slow U.S. growth.
The most recent turmoil has convinced those policy-makers that the risks of inflation and recession had ''become balanced,'' Greenspan said. The Fed would ''need to consider carefully'' the potential threats of the deepening global economic troubles, he added.
Analysts viewed Greenspan's language as a clear indication the Fed's new worry is a U.S. economy slowed too much by Asia. That would represent a change from Greenspan's mid-year report to Congress just six weeks ago. Then, he indicated that a bigger risk was inflation from too-tight labor markets.
''The comments he made were very significant in terms of signaling a major change in monetary policy,'' said Lynn Reaser, economist with Nationsbank Corp. in Jacksonville, Fla.
David Jones, economist at Aubrey G. Lanston & Co. in New York agreed. But he said it was unlikely the Fed would cut rates at its next interest-rate meeting on Sept. 29. Jones expected the Fed would see whether U.S. financial markets settle down and how much of a drag a sharply rising trade deficit becomes on the overall economy.
The Fed has not changed interest rate policy since March 1997. Its federal funds rate, the benchmark for millions of Americans' short-term borrowing costs, has remained at 5.5 percent.
Greenspan's comments were likely to provide solace to financial markets disappointed that Miyazawa did not present more concrete details on how the government of new Prime Minister Keizo Obuchi plans to shore up its shaky banking system and revive the economy.
''It is important for Japan to move,'' Rubin told reporters after the discussions. ''The world needs Japan to get back on track.''
Rubin hoped the talks had provided some momentum to Japan's efforts. He also noted that Clinton and Obuchi will meet in two weeks in New York, apparently in an effort to lay down another marker when the United States will be judging Japan's commitment to economic reform.
Both the San Francisco meeting -- and Greenspan's speech -- followed a harrowing week for global markets.
Russia's economy appeared to be in a free-fall after a botched devaluation of the ruble and the government's unilateral declaration it was delaying payments on billions of dollars in foreign loans.
That sent investors scurrying for the exits in other emerging markets. Markets across Latin America took steep dives Friday, despite a special International Monetary Fund meeting in Washington of finance ministers of nine of the largest Latin American economies. The meeting was intended to show the ministers' resolve to withstand the global turmoil.
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