Japan's Reformist Coalition Sets Course for Responding To US Demands on Trade

JAPAN'S new prime minister, Morihiro Hosokawa, plans to offer targets and timetables for deregulating portions of Japan's economy before he meets President Clinton next month.

His initiative, announced yesterday, appears to meet some of Mr. Clinton's demands for opening Japan to more foreign goods, but two dramatic changes have also moved Tokyo closer to the United States position.

The coming to power of Mr. Hosokawa's reformist coalition on Aug. 9 and a nearly 20 percent rise in the yen since January have focused a spotlight on bringing cheaper imports to the Japanese by removing protectionist barriers defended by a powerful bureaucracy.

Despite the stronger yen, a web of business practices and government rules has kept consumers from seeing much of a price drop in imported goods or oil-based utility bills, reinforcing Hosokawa's call for reducing the role of Tokyo bureaucrats.

"We want year-by-year, figure-based targets for deregulation," Chief Cabinet Secretary Masayoshi Takemura said yesterday. Within about a month, he added, the government hopes to prepare a comprehensive package to deal with US-Japan trade talks, stimulate the economy, and provide benefits of the high yen to the public.

Hosokawa and Clinton spoke on the phone yesterday in their first official chat, agreeing to meet in late September.

The two men met briefly in Tokyo last month just before a general election ended the 38-year rule of the conservative Liberal Democratic Party and swiftly thrust the maverick Hosokawa into power, bringing with him promises of social and political change by his seven-party coalition.

After a week in office, the "consumer friendly" Hosokawa was faced with another sudden rise in the yen, this one threatening to prolong Japan's two-year-old recession by making Japanese exports more expensive. The rising yen

The yen's rise reflects the distortion of the Japanese economy in which bureaucrats make sure that the government exports far more than the country consumes.

Japan's car and electronics industries lose about $500 million a year each time the dollar falls one yen, estimates the Yamaichi Research Institute of Securities and Economics Inc.

Many exporters face a possible profit loss in the next few months with a soaring yen. They could be forced to downsize.

But the high yen also brings a massive windfall for importing companies, a point which the new government uses as a way to appeal to consumers.

"The problem is whether the massive windfall will remain nothing but numbers on a calculator or whether the windfall can be recycled into better corporate performance and improvements in people's lifestyles," the Yomiuri newspaper editorialized.

But a legacy in Japan of weak politicians failing to stand up to powerful bureaucrats may hinder the Hosokawa effort to free up markets. Japanese officials hope to use the appearance of US pressure to help push deregulation.

The Japan Employers' Association asked the government this week to reduce prices in such regulated products as rice, beef, and imported cars.

In early July, Clinton and then-Prime Minister Kiichi Miyazawa struck a deal for a "framework" of negotiations aimed at reducing the rising trade imbalance between the US and Japan.

Japan's trade surplus with the US rose 22.8 percent in July. It has been rising for 16 straight months, led by exports of autos and semiconductors.

Clinton wants specific targets for market share of certain foreign goods. But Japan has resisted such targeting because it would bring more government involvement in the economy. The two sides will begin detailed talks in September on 16 sectors, such as computers, satellites, and financial services.

The new trade minister, Hiroshi Kumagai, said that "Japanese markets are extremely closed in invisible ways," but he rejected the US call for market-share targets. Japanese markets

"It is natural that the US and Europe view Japan as strange," Mr. Kumagai said. "Our ways must be corrected if Japanese business hopes to survive in the international community."

Deregulation is one of the last tools available to the government to stimulate the economy. The Bank of Japan has reduced interest rates to a record low and government pump-priming has reached a limit in tax revenues.

"It's absolutely essential to cut Japan's current account surplus," said the Bank of Japan governor, Yasuhi Mieno. He called for "concrete plans" for drastic deregulation of the domestic market. The new foreign minister, Tsutomo Hata, said that the government may try to reduce the ratio of the surplus as a percentage of gross national product.

The US wants the ratio reduced to 1.5 percent from the present 3.4 percent. Mr. Hata mentioned the possible figure of 2 percent or less. But chief economic planner Manae Kubota told reporters that the large trade surplus is difficult to reduce.

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