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Getting Japan Rolling

March 4, 1998



The United States does not often allow other nations to influence its economic policies. Such policies are usually governed by domestic political and economic needs.

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Nor do American politicians like it when European and Japanese officials criticize US economic policy, as they did when the US had huge federal budget deficits a few years back.

So it should be no surprise that Japanese officials don't welcome the parade of Americans calling on Japan to step on the economic gas pedal.

Last month, Lawrence Summers, deputy secretary of the treasury, called for "substantial, early additional fiscal action" to boost both the Japanese economy and that of its troubled Asian neighbors. "Virtual policy is not enough," he said.

Commerce Secretary William Daley, Federal Reserve chairman Alan Greenspan, Gene Sperling (President Clinton's economic policy adviser), and Treasury Secretary Robert Rubin have all taken pokes at Japan's slowness in stimulating its own economy.

"It is a time for leadership," Mr. Daley said in Tokyo last month. The "eyes of the world are on Japan."

Japan was browbeaten further a week later at a meeting of the Group of Seven finance ministers in London. "We didn't promise anything," replied Eisuke Sakakibara, a Japanese finance ministry official at that meeting.

Japanese stock prices fell sharply, as they usually do when budget relief appears uncertain. The yen dropped in value in relation to the US dollar.

Japan has taken some measures to boost its economy. But these haven't been enough to revive business activity. Economists see only slight growth this year - about 1.7 percent in real terms, reckons Kathleen Stephansen of Donaldson, Lufkin & Jenrette, an American brokerage house. That's only a slight pickup from 1997.

As in the US, domestic politics plays a big role in Japan. In late 1996 Prime Minister Ryutaro Hashimoto pledged to cut Japan's sizable budget deficit. But he indicated last week that he would like to take emergency "steps to reactivate the economy" by mid-March. Such tax cuts and extra spending in a supplemental budget would enlarge the deficit. This would sidestep a law Japan's parliament passed last year strictly limiting regular budget spending. The yen and stock prices quickly strengthened.

We sympathize with Japanese sensitivities to outside pressures. But it would be helpful to Japan and the world if its economy begins to heat up again. More fuel, in the form of spending and tax measures, is needed.