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Action Urged to Bolster Japan's Banks

Asia: Deputy Treasury Secretary Lawrence Summers restates U.S. position after high-level meeting with Miyazawa in San Francisco.

September 07, 1998|From Bloomberg News

It's vital for the global economy that Japan bolster its economy through concrete actions and prescribe an elixir for its ailing banking system, U.S. Deputy Treasury Secretary Lawrence Summers said.

The U.S. has repeatedly urged the Japanese government to stimulate its economy via fiscal policy, tax cuts and banking system reform.

"There's no question that over the last months, Japan has taken some additional measures that are related to these issues," Summers said on the television program "Fox News Sunday." "But it is a deteriorating economic situation in Japan, and what will be crucial is the steps and actions--not just the plans and proposals."

Summers said the actions Japan needs must be "concrete" and that the U.S. is carefully watching developments in Tokyo. Summers joined Treasury Secretary Robert Rubin, Federal Reserve Board Chairman Alan Greenspan and Japanese Finance Minister Kiichi Miyazawa in San Francisco on Friday for a meeting about Japan's economic situation.

Greenspan, who delivered a speech just before joining Rubin and Miyazawa, said the policy-setting Federal Open Market Committee "will need to consider carefully the potential ramifications of ongoing developments" in global economies--a signal the Fed is considering reducing the target rate for overnight bank lending.

In early Asian currency trade, the U.S. dollar was higher against the Japanese yen as investors focus on Japan's weak economy. The dollar rose to 134.45 yen and was little changed at 1.732 German marks.

Still, the dollar's gains could be limited. "I get the impression the weakness of the U.S. economy and the vulnerability of the U.S. economy is going to take center stage" in foreign exchange markets, said Anthony Chan, chief economist at Banc One Investment Advisors Corp. in Columbus, Ohio.

The latest numbers on U.S. markets and the overall economy suggest, as Greenspan said in his speech to UC Berkeley students, that "it's just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress."

Investors didn't expect any concrete actions to emerge from Miyazawa's meeting with Rubin. "The new information is coming out of Greenspan, not out of Rubin," Chan said. "My suspicion is that the speech by the Fed chairman is in fact going to dominate trade," he said.

Miyazawa told Rubin that Japan would "take all possible steps" to stimulate its economy and reform its banking system. Rubin said while nothing in Miyazawa's presentation was new, he hoped their meeting would "move things forward" in Japan, given the critical role that country plays in the world economy. Summers said today he didn't think Japanese officials believed they were being made a scapegoat for the economic and financial crisis sweeping emerging markets around the globe.

"We've always said, and the Japanese have generally recognized, that what happens in Japan is profoundly important for Japanese people, for Asia, and for the global economy," Summers said.

The health of Japan's economy is "terribly, terribly important, which is why we've been so engaged with encouraging them to take steps that are in their interest and the global interest."

At their Friday meeting, Miyazawa said foreign exchange rates weren't discussed and Rubin said that U.S. policy favoring a strong dollar was unchanged.

"Our foreign exchange policy is absolutely unchanged," Rubin said. "The strong dollar has served our interests. For quite some time, we have shared Japan's concern about the weakness of the yen." However, he said, "There was no specific or concrete discussion with respect to exchange rates." Interest rates weren't discussed either, Rubin said.

Miyazawa suggested that Rubin offered a pointed view of how seriously the U.S. regards the need for Japan to accelerate actions to boost its economy.

"I told Mr. Rubin that Japan recognizes the importance of making the Japanese economy recover," Miyazawa told reporters. And "Rubin said that Japan doesn't seem to fully feel a sense of urgency," Miyazawa said.

"What dominated the meeting was that it's urgent for Japan to get back on track," Miyazawa said.

He said he pledged "rapid implementation" of fiscal measures, such as individual and corporate cuts. And he said he "stressed the government will take all possible steps to promote financial stability."

Rubin told reporters that he hadn't expected to hear anything new from his Japanese counterpart and said the long-planned meeting was simply an opportunity to exchange views.

During the last several months, "there has been a change in direction" in fiscal and banking policy in Japan, Rubin said. "I would like to hope that the kinds of discussions we've had today will help to move that forward, but ultimately it will depend on what Japan does."

And Rubin, who downplayed expectations for the meeting even as recent volatility in global markets added urgency to the discussions, said investors will have to decide for themselves how to react.

Stock market turmoil in recent days unrealistically raised expectations for the meeting, Rubin suggested in a discussion with reporters on the flight to San Francisco. He added that investors shouldn't react negatively if there are no major announcements.

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