IP: Clinton Administration "Reverse Course"

[David Farber <farber () central cis upenn edu>]

Date: Wed, 6 Sep 1995 16:19:55 +0900
To: farber () central cis upenn edu (David Farber)
From: sja () glocom ac jp (Stephen J. Anderson)


Merrill Lynch economist Ron Bevacqua had a short, provocative piece
in the English-language Daily Yomiuri on September 5 that looks at trade
policy and charges the Clinton Administration with the equivalent of
"unilateral disarmament" toward Japan.  I think Ron is largely correct,
but the piece got some clarification from the business and economics
specialists on the leading list discussing US-Japan relations.


To recall the main points, Mickey Kantor and other economists in the
Administration appear to have lost in their struggles with security experts
such as Joseph Nye on policies towards Japan.  Rather than an emphasis on
improving America's exports to Japan, agreements to base troops in Japan and
to reduce the value of the yen were provided to the Japanese bureaucrats
without any requirements in return.  The smoking gun in this story of the
reverse course involved visits to Tokyo in July by top Administration
economics policymakers, and these officials decided that the Japanese
economy was in deflation.


My colleagues below helped identify the American policymakers, and clarified
timing and reasons for the US intervention in exchange markets that devalued
the yen and reduced pressure on Japan.


Steve Anderson
Center for Global Communications
Tokyo


From: dfriedman () earthlink net (David Friedman)
Subject: Re: Clinton Administration "Reverse Course"


        Jim Mann offered a lengthy (and fairly chilling) news analysis of
precisely the same issue in the Los Angeles Times, Monday, September 4.
Accompanying the article was a photo of the President wearing an
ill-fitting batik shirt at the APEC conference, grinning meekly, amid the
cheery headline: "US Backs Off From Tough Stance on its Trade Imbalance
With Japan."


        The tag line:


        " 'The world needs these two countries [American and Japan] to
cooperate,' Clinton said after his first summit meeting with Japanese
leaders two years ago.  "And it can only happen if we are making real
progress on this trade deficit.'


        Clinton's first point may well be true.  So far, his policies are
proving the second point to be wrong."


David Friedman
The Friedman Group, Inc.


From: Skipp_Orr-R18003 () email mot com
Subject:   Clinton Administration "Reverse Course"


Steve,


I'm assuming that (Ron) is referring to Undersecretary for International Trade,
Dept. Commerce Jeff Garten (he made a speech suggesting a toned down
approach at
the FCCJ) and Undersecretary of State for Economic Affairs Joan Spero.  She
made
a speech to the same effect at an ACCJ Board meeting.  If this is the case it
was in  early August, not July.


Skipp
(Robert Orr, Nippon Motorola)


From: "ron bevacqua" <Ron=Bevacqua%JPN%RSCH () banmail ibk ml com>
Subject: Re: Clinton Administration "Reverse Course"


For evidence that US officials came to Japan brandishing dog-eared
copies of doomsday scenarios from the pages of the Far Eastern Economic
Review, the Economist, and the editorial pages of the Wall St. Journal, check
out p.5 of the Nikkei on July 30. The article says that Undersecretary of
Treasury Gainter ("gaitona-" ?) and unnamed regulators and analysts from
the Fed came to Japan in both June and July to meet with MoF, the Bank
of Japan, private banks, and banking analysts.  I presume they met with
analysts in the US embassy as well.


At that time, I know that only a few banking "analysts" were claiming that
the financial system was about the collapse, and I'd be surprised that
analysts in the US embassy would have taken such an extreme view.  But I
woudn't be surprised if that is exactly what MoF, BoJ, the Bank of Tokyo
etc, told them.  And it is very evident that this is exactly the position they
went back to DC with.  The US pays a lot of money to support our embassy
staff in Tokyo; if their work is going to be ignored by know-it-all political
appointees, it seems to me we could save a lot of money be closing down
the embassy (the land must be worth millions!) and getting a few extra
subscriptions to the above-mentioned authorities on the Japanese financial
system.


Keep in mind that the point I was making in the Yomiuri article is that,
although the backpedaling on the yen was the result of inept analysis
in DC, it may not have taken place if there had not been a much broader
shift in US policy toward cooperation within the Clinton admin. Ezra Vogel
said as much when he was here two weeks ago.  But the Nikkei ran an article
on July 23 quoting Jeff Garten as saying that US-Japan relations needed
to be repaired.  That was about a week or two before he came to Japan.


Ron


NOTE:  The yen has fallen from around 85 yen/dollar to close to 100
yen/dollar within a month.


Some banks have failed.  Though several credit unions and banks underwent
closings, most observers of Japanese banking think this trend long overdue
and necessary for many more financial institutions.