Japan, US begin to iron out their economic and defense disputes

Relations between the United States and Japan are beginning to flower. But they are still fragile and will need further Japanese nourishing in order to survive, according to US assessments.

Some of the severest economic issues that have strained the friendship in recent years have largely been solved, while others appear to be moving toward solutions or compromises the US can probably live with for the time being.

Only a few weeks ago, US trade representative William Brock warned that Japanese reluctance to compromise on the certain trade and economic issues was ''tempting fate,'' and could eventually lead to ''tragedy for them, for us, and the (free) trading system.''

But then the two countries reached a precedent-setting agreement on steady expansion of Japan's imports of US beef and citrus fruit. And in early May, Tokyo announced yet another package of measures to further open Japan's market.

Visiting Tokyo last week, Vice-President George Bush praised his hosts for the progress that had been made, citing the beef and citrus-fruit agreement and the liberalization of other Japanese markets to US companies: tobacco products, satellites, and the multibillion network of computerized data-processing and transmission systems.

But it's still questionable whether such measures can have much impact on the underlying trade dispute: The US suffered a record $26 billion trade deficit with the Japanese last year - and could suffer a similiar deficit this year.

Interwoven in the longstanding trade dispute has been the issue of defense. Some Americans resent the fact that the Japanese, while running up massive trade surpluses with the US, have showed themselves unwilling to spend more on boosting defense capabilities and relying less on American military protection.

Defense Secretary Caspar Weinberger also visited Tokyo last week for talks with Prime Minister Nakasone and Japan's Defense Minister Yuko Kurihara. It was a friendly, low-key visit, strong on agreement about the Soviet military threat and light on American suggestions about how the Japanese should meet that threat.

Japan has just begun work on a new five-year defense buildup program (1986-90 ), designed to be completed three years later than originally scheduled in 1976.

Mr. Nakasone told Mr. Weinberger that the main emphasis would be on improving logistics and other areas to enable Japan to sustain a conflict much longer and give the US a chance to mobilize its forces to intervene. Some Japanese military leaders have suggested in the past that this country could fight an all-out war for only 30 minutes or an hour.

Mr. Weinberger stressed that the US had no right to dictate how another country should develop its defense potential. Washington was not setting any goals for Japan's military role or level of military spending, he said, adding sympathetically that one of the biggest problems for any democratic state was to win public acceptance for larger defense budgets.

Mr. Kurihara noted that while his government shared the US view of the Soviet military threat, the Japanese public was not yet quite in step: ''The US has faced the Soviet bogey in recent conflicts such as the Vietnam war, Japan has not.

''It may be one of my tasks to get the Japanese people to recognize properly the threat posed by growing Soviet power (in the Pacific) and to step up the nation's defense buildup program,'' he added.

On the economic front, some Japanese commentators publicly, and some American officials privately, described the latest Japanese market opening measures as ''little more than window dressing.''

The feeling is that the big issue still pending is internationalization of the Japanese yen - forcing it to a more realistic exchange rate with the dollar through exposure to outside market forces - and liberalization of Japan's capital markets.

The US and Japan are seeking to resolve all outstanding issues before Prime Minister Nakasone and President Reagan meet at the London summit of seven Western industrialized nations, scheduled for June 7-9.

The US is pressuring Japan to substantially relax restrictions on foreign and Japanese access to the ''Euroyen bond market,'' the issue of yen-denominated bonds on European capital markets. The US sees this as important to getting the yen into greater international use.

Japanese authorities are reluctant to let go completely, fearing this will plunge domestic capital markets into an era of chaotic competition.

There is also strong Japanese resistance to give up a withholding tax on Euroyen bonds held by foreigners, desired by the US to promote bond sales. The Japanese say the move could reduce government revenues at a time of record budget deficits and eventually disrupt the nation's taxation system.

But controls are gradually being loosened. For example, foreign banks will be allowed to enter the Japanese trust banking field, either by themselves or in tie-ups with Japanese financial institutions.

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