Japan tries to put on the best face for the 'Big 7' summit

Japan and the United States basically agree that what is best for the world economy is solid growth based on stable, realistic currency exchange rates. But they don't agree on ways to achieve these vital goals.

Herein lies the major challenge for Prime Minister Yasuhiro Nakasone when he attends the Williamsburg economic summit this weekend, Japanese officials believe.

Nakasone is being urged by politicians and businessmen to join with West Europe in appealing to President Reagan for more cooperative policies to stimulate economic growth and restore order to volatile foreign exchange markets.

And there is a widespread feeling in government circles that sweeping trade liberalization measures taken by Japan have earned it the right to lead the fight against creeping protectionism in the United States and Western Europe.

If any of the participating countries are going to be put ''in the dock'' this time, Japan has no intention of playing the defendant's role again.

An official of the Ministry of International Trade and Industry (MITI), noting persistent American and European criticisms of the undervalued yen, said: ''If there should be any open criticism of Japanese monetary policy at the summit, which I consider unlikely, the blame must be squarely laid on the United States.''

Japan, like Europe, believes high US interest rates are at the root of all the current economic problems.

The yen is weak, helping boost Japan's exports. But the Japanese maintain the answer is in Washington's hands.

There is a growing feeling in Tokyo that floating exchange rates in the past decade have not been the panacea for the world's economic problems but have created additional instability.

To counter this, an idea has been taking shape here for Japan, West Germany, and the US to join in restoring order to the money markets. Although not yet made public, it calls for the three countries to set up a sort of ''international monetary stabilization account.''

The US would contribute the equivalent of $100 billion - with the other countries matching that - in national bonds or by concluding a line of credit agreement with their central banks. The new organization would issue securities of various maturities in dollars, marks, and yen to raise funds for investment in assets denominated in the three currencies, which could then be made available when drastic action was needed to correct unnatural exchange rates.

One problem would be deciding what constitutes proper exchange rates. But the backers of the plan reportedly feel such a coordinated approach is the only answer, and that the ''very strong political will'' required to set up such a scheme could help create the desired market stability.

Initially, the idea appears to have been for Nakasone to present the plan at Williamsburg. But the plan was dropped due to the lukewarm reaction in Europe and the US.

Another idea for global economic revival - having the industrialized nations jointly ''spend their way out of trouble'' - has also been quietly dropped. In March, government sources floated the idea of advanced countries building a second Panama canal or a hydropower station in the Himalayas.

So, Nakasone really has very little that is new to carry to Williamsburg to offset any criticism of Japan for its monetary or trade policies.

Embarrassingly, the Japanese trade surplus has suddenly surged at the most inopportune moment: a balance of payments surplus in fiscal 1982 of $20 billion, producing a current account surplus of $9 billion.

Tokyo officials insist ''it's not our fault.'' It certainly was not due to any aggressive Japanese export drive. Exports were actually down 9.1 percent from the year before. Unhappily, imports dropped 10.3 percent due to weak domestic demand and big savings on oil. Virtually no increase in exports is expected this year, but the Bank of Japan believes the trade surplus will top $ 30 billion.

The key will again be lack of domestic demand for imports of every kind. And no one in government seems to have any good ideas on how to overcome the problem , apart from a further cut in interest rates.

According to one respected economic analyst: ''The Bank of Japan has been desperate for months to cut its discount rate (now 5.5 percent) by at least half a percent or more to stimulate business activity. But, without a matching American commitment, it dare not do this because it would only weaken the yen further. . . . And the one thing the central bank wants now is a strong yen.''

Would more internationalization of Japanese capital markets help? Very doubtful, according to Hirohiko Okumura, a think-tank economist who lectures internationally on the yen.

As far as financial transactions are concerned, the yen is already heavily internationalized, Okumura points out. Japan's external assets and liabilities now stand at some $230 billion, compared to $81 billion at the end of 1977.

This is still only less than a third of the American level, but the Japanese annual growth rate far outpaces that of the US. So that gap is steadily narrowing. But in trade, the dollar still reigns supreme - accounting for 97 percent of Japan's import settlements and 60 to 70 percent of exports.

One way to make the yen more acceptable internationally would be establishment of a ''bankers acceptance market in Japan,'' Okumura explained. But the finance ministry is reluctant to approve this as it could stimulate decontrol of other domestic financial markets.

One Western banker explained: ''The Finance Ministry and the Bank of Japan want liberalization at a rate which can be controlled to ensure stability.

''Americans are very vocal in calling for more decontrol. But there is already considerable liberalization and the main result of this has been massive capital outflows due to higher US interest rates which have weakened the yen. More decontrol by the Japanese in splendid isolation now would simply exacerbate the problem.''

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