The 'Unshakable' yet Shaken US-Japan Relations

Plans were set Thursday to fix Japan's banks. Albright visited Saturday. Both events reveal a bilateral imbalance.

When US officials try to describe America's relationship with Japan they usually wax architectural, describing it as a "cornerstone" or "foundation." Secretary of State Madeleine Albright, who stopped in Tokyo over the weekend, digs just little bit deeper, calling US-Japan ties "the embodiment of an unshakable friendship."

Ms. Albright's protestations notwithstanding, the two friends have been shaking each other up lately. For one, US officials have been blunt and specific in telling Japan that it must fix its economy, making vaguely ominous comments about a limited "window of opportunity." And many Japanese can't help but worry about the new coziness between the US and China.

The events of just the past few days illustrate how the give-and-take between Washington and Tokyo works. The Japanese government last week announced the most concrete set of measures yet to address the bad loans in its banking system - a step US officials have demanded. And Albright's 16-hour visit here on Friday and Saturday was an attempt to reinforce the idea that warming up to China doesn't mean freezing out Japan.

There is an imbalance in the relationship: Tokyo is sometimes moved to concrete action, while Washington can usually get along with words and visits. One reason is a lopsidedness left over from World War II and perpetuated by Japan's reliance on the US for its defense. Another is that change in Japan is a slow, consensual, and incremental affair; a nudge from the outside world is often politically convenient.

Gaiatsu, or foreign pressure, ended Japan's self-imposed isolation at the end of the last century, the beginning of its race toward modernization. These days, the Japanese government's announcement of a plan to create a "bridge bank" system, designed to ease the impact of allowing ailing banks to fail, strikes some observers as the fruit of gaiatsu. "Japan cannot act on its own," says Terumasa Nakanishi, a professor of politics at Kyoto University. "It was only the power of gaiatsu that could basically force Japan to act on the ideas of the bridge bank and a permanent tax cut."

Even Sadaaki Numata, spokesman for Japan's Ministry of Foreign Affairs, concedes that "hints may have been provided by the United States" in formulating the plan. "Some people call it pressure," he adds. "I do not."

The Japanese economic measures aren't wholly satisfying to either the US or analysts in the financial industry, who have also demanded bold action if Japan is to bring itself out of recession and help contain the Asian economic crisis.

Under what the government calls its "total plan" for financial revitalization, administrators from a newly formed Financial Supervisory Agency would assume control of a failed bank and try to find a solvent institution to take it over. If none were found, a "bridge bank" would be formed to keep loaning money to financially healthy borrowers.

AT the same time, the government administrators would shunt a failed bank's bad loans over to a national collection agency - something like the Resolution Trust Corp. formed in the US to clean up the savings-and-loan mess - that would try to recover some value by selling collateral.

While the plan contains unprecedented specifics, most market analysis hangs between caution and criticism. "The main issue is that we don't feel that the bridge bank [system] is efficiently set up to close down institutions," says Betsy Daniels, bank-ing industry analyst in the Tokyo office of Morgan Stanley. "We don't feel politicians or bureaucrats have the will to close banks."

Ms. Daniels says that the five-year time frame seems designed to keep borrowers alive and limit the number of bankruptcies, in order to minimize unemployment and social discord. She also worries about the capacity of the Financial Supervisory Agency administrators to close banks and cut off borrowers, since the new body is a spinoff of the Ministry of Finance - the bureaucracy that allowed Japan's bad-loan crisis to develop in the first place.

This skepticism is why Albright tempered her assurances about the solidity of the US-Japan relationship with wait-and-see comments about the newly announced economic policy. Yesterday Prime Minister Ryutaro Hashimoto denied plans to permanently cut taxes, something he seemed to hint at last week, saying he had been misinterpreted. The US has been eager to see such reforms.

Although officials insist publicly that they were not flustered by Mr. Clinton's decision not to visit Japan before or after his China trip, in private the tone is different. "It's fair to say," one government official said recently, speaking on condition of anonymity, "that there is some ... disappointment in Japan."

Outside of official circles, there is an unusual amount of anti-US sentiment circulating these days. Many Japanese acknowledge that gaiatsu is a sometimes necessary tool for getting things done. But whatever success the US pressure tactics might have yielded, it has also generated resentment about US "bullying."

When Deputy Treasury Secretary Lawrence Summers visited two weeks ago, some television news shows compared his arrival with that of Gen. Douglas Mac-Arthur's after Japan's WWII defeat. Weekly magazines have also printed articles speculating about secret US plans to manipulate Japan's economy for its own ends.

But gaiatsu isn't all bad. "Clinton has done a favor for the LDP," says political analyst John Neuffer, referring to the ruling Liberal Democratic Party, which is now in the final week of an election campaign. The bridge bank plan is making the LDP look good, says Mr. Neuffer.

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