For Nakasone, a low-key welcome home. Final assessment of US trip hinges on Japanese market reactions

The eyes of many Japanese will be on the foreign exchange and stock markets when they reopen today after a holiday weekend. The markets' movements will provide the most visible barometer of how Japanese assess the results of Yasuhiro Nakasone's visit to Washington last week.

Prime Minister Nakasone gave himself high marks for heading off trade confrontation and for gaining a United States co-pledge to ``foster stability of exchange rates.'' But if the dollar weakens here and Japanese stock market investors display a wary mood, it will be a clear sign that other Japanese do not share his view.

While in Washington, the premier announced the Bank of Japan would lower key Japanese interest rates. At the same time, Paul Volcker, chairman of the US Federal Reserve Board, said the US is working to tighten credit. Both moves are intended to strengthen the dollar. This and the cooling of the trade disputes are considered vital to halt the slide of the Japanese and US economies.

The initial reaction to Mr. Nakasone's visit has been, at best, mildly favorable. In the short term, as one Japanese political observer put it, ``Nakasone snatched a draw out of the jaws of defeat.'' Many expected much worse.

Japanese business and government officials are hopeful that the visit will yield clear results on at least two issues - currency exchange rates and the removal of the trade sanctions on Japanese electronic products.

The president of the Federation of Economic Organizations, a big-business group, said, ``We hope the agreement will lead to stabilization of the exchange rates.'' The electronics industry welcomed President Reagan's promise to lift the $300 million in retaliatory tariffs as soon as possible.

The recent fluctuations in the financial arenas demonstrated that initial optimism. At the beginning of last week, when anxieties were at their height, the dollar fell to an all-time low of 137.25 yen. Investors in Tokyo's stock market were worried. On April 27, the market's Nikkei index (similar to the Dow Jones) lost 831 points, the largest one-day drop ever.

By the end of the week, when the first returns from Nakasone's visit came in, there was a turnaround. The dollar rose to 140.30 yen, and the stock market regained all the ground it has lost.

But the first blush of a rosy view may soon fade. Even the nation's largest daily, Yomiuri Shimbun, usually pro-Nakasone, was cautious in its editorial praise. ``Whether the summit will open the door to a bright future depends on what comes next. The prime minister stated at a press conference that `the mist has risen.' There is no guarantee, however, that the sunshine won't prove to be another momentary illusion.''

The Japan Economic Journal, the leading business journal, was actually quite harsh in its editorial assessment of the trip. ``The weekend Japan-US summit talks ... ended without any specific solutions for the problems that confront the two countries, thus betraying the hopes of many people. ... Although both sides acknowledged a sense of crisis, they failed to reach agreement on any concrete policy measures besides Japan's repeated promise to expand domestic demand.''

The most widely expressed concern is that while Nakasone did well in mending fences with Mr. Reagan, little has been done to cool the US Congress's temper. As the Mainichi Shimbun, a mass-circulation daily, said: ``Although the personal friendship of President Reagan and Prime Minister Nakasone was clearly evident, there seemed to be a general feeling of coolness in the attitude of the US government as a whole.'' The Japan Economic Journal said: ``The likelihood of protectionist trade legislation in the US appears to be as great as it was before the latest Japan-US summit.''

The general view seems to be that the hard problems remain. The budget package aimed at stimulating domestic spending promised by Nakasone must now be specifically formulated. And a battle with the austerity-minded Finance Ministry is expected. The issue of liberalizing Japan's agricultural imports, particularly rice, is even more difficult to deal with. ``Opening the market and restructuring the economy will create a painful strain on Japanese society - both politically and economically,'' the Yomiuri editorial noted.

After the summit, the Japanese have their own expectations of the US. ``The President pledged in the joint statement to reduce the budget deficit, strengthen the competitiveness of American industry, and resist protectionist pressures,'' Japan's second-largest daily said. ``[But] ... we expect the US to carry out its own promises and show tangible results.''

The most tangible result that the Japanese will be looking at will be a change in the foreign exchange markets. What, asked the Mainichi, is the real ``extent to which the US will endeavor to protect the dollar and prevent its further decline?'' So far, the foreign exchange traders have been harsh judges of the dollar's ultimate stability. If they continue to render that judgment this week, the message will be meant for Nakasone as well.

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