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No. 42 — November 8, 1996

 

Feature Article

LOOKING AT THE FUTURE OF U.S.-JAPAN ECONOMIC RELATIONS

An Interview with Kent E. Calder,
New Economic Advisor to the U.S. Ambassador to Japan

Summary

Washington and Tokyo in recent years have concluded a significant number of agreements aimed at opening Japanese markets to imports from the United States and elsewhere of various products and services. With the early August conclusion of a bilateral semiconductor trade pact and the late September decision to come to terms by mid-December on how deregulation of Japan's insurance market should proceed, U.S.-Japan economic watchers generally foresee a much quieter transpacific trade front in 1997.

While the decibel level of the bilateral trade dialogue may become lower, U.S. officials still will have a full agenda just monitoring Tokyo's implementation of the various market access arrangements signed to date, according to Kent E. Calder of Princeton University. JEI senior political analyst Barbara Wanner recently discussed the bilateral economic challenges that lie ahead with Mr. Calder, who will become U.S. Ambassador to Japan Walter Mondale's new economic adviser later in November.

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Weekly Review

BUDGETARY POLICIES OF SECOND CLINTON TEAM LIKELY TO AFFECT JAPAN
--- by Douglas Ostrom

Four years ago few analysts would have predicted that the yen would be weaker on election day 1996 than when President Clinton first was elected. The yen's long-term upward momentum seemed unstoppable in November 1992. Yet the yen arguably has reversed course and fallen to levels weaker than when Mr. Clinton first won the White House. Logical questions today center on what policy actions in the first four years contributed to that result; these queries, in turn, lead to assessments of initiatives that Mr. Clinton might undertake in his second term.

 ELECTION UNLIKELY TO SPARK CHANGE IN U.S. FOREIGN, TRADE POLICY
--- by Christopher B. Johnstone

After months of campaigning, hundreds of public opinion polls, dozens of caucuses and primaries, and an unceasing stream of speculative analysis, the 1996 U.S. election season is finally over. Commentators and pundits now can busy themselves with the next all-consuming question: What does it mean? For neither party is the message entirely clear. Despite his landslide win in the electoral college vote, President Clinton's reelection November 5 remains an ambiguous victory. In becoming the first Democrat since Franklin Roosevelt to win a second term to the White House, Mr. Clinton defeated Republican nominee Robert Dole by a considerably smaller margin of the popular vote than some preelection polls had predicted. The president's coattails also essentially were cut off at the waist. The Democratic Party fell well short in its quest to recapture the House of Representatives although Democrats appeared to have picked up a handful of seats in the chamber. In the Senate the Democratic Party lost ground, although many of the 34 contested seats were decided by only a few percentage points; the chamber appears likely to remain in Republican hands for some time. Perhaps nothing symbolized the American public's apparent political schizophrenia more than the race for an open Senate seat in Arkansas, Mr. Clinton's home state. The president won the state by a double-digit margin, but a GOP candidate will replace retiring Democrat David Pryor in the Senate — the first Arkansas Republican to win election to that chamber in more than 100 years.

 NEW CLINTON TEAM UNLIKELY TO ALTER U.S.-JAPAN SECURITY COOPERATION
--- by Barbara Wanner

Although changes or shifts in personnel often accompany the reelection of an incumbent American president, Washington insiders say that any new members of President Clinton's team are unlikely to alter efforts underway to enhance U.S.-Japan defense cooperation. The inside-the-Beltway rumor mill suggests that 1997 may see important leadership changes at the Department of State and the Department of Defense, the two agencies with principal responsibility for bilateral security policy. If Secretary of State Warren Christopher decides to step down, the list of possible successors reportedly includes former Sen. George Mitchell of Maine, among others. John Deutch, currently director of the Central Intelligence Agency, is said to have the inside track on Secretary of Defense William Perry's job, if Mr. Perry decides to leave. However, experts propose that the new cabinet and staff appointees of the Clinton administration likely will strive to build on, rather than to reengineer, various initiatives that were launched in the wake of the joint security declaration concluded last April by President Clinton and Prime Minister Ryutaro Hashimoto (see JEI Report No. 16B, April 26, 1996).

JAPANESE BANKS BOOST CAPITAL RATIOS
--- by Jon Choy

Japanese banks appear to have been a busy bunch of beavers recently, if their recent reports regarding capital adequacy ratios are taken at face value. Between March 31, 1996 and September 30 about half of Japan's 20 largest commercial, long-term credit and trust banks boosted their ratio of capital to assets, a measure used by the Basel-based Bank for International Settlements to evaluate the financial health of internationally active banks. Japanese bank officials trumpeted the new ratios as evidence that they have dealt successfully with the huge amounts of nonperforming loans on their institutions' books, which most analysts considered a severe threat to their financial standing. Skeptics, however, were not convinced by the new figures. Japanese bank accounting and financial reporting practices, they countered, still do not tell the whole truth. Recent revelations about underfunded pension liabilities and sudden, drastic revisions by some financial institutions of their business results seem to underscore the skeptics' concerns.

HEALTH OFFICIAL'S ARREST FOCUSES ATTENTION ON BUREAUCRATS' ROLE
--- by Pat Murdo

Bureaucrats at the Ministry of Health and Welfare and possibly elsewhere in Japan are on alert, worried that the indictment of a former administrator in the Biologics and Antibiotics Division — the first health official ever to be indicted under a criminal accusation of professional negligence — may have significant reverberations for their work relationships. Although the October 25 indictment of Akihito Matsumura may be a striking aberration from the norm, it also might signal a new attitude that supports the interests of consumers and the public over those of industry and the bureaucracy. At the very least Mr. Matsumura's arrest may reflect prosecutors' efforts to respond to the families of those 400 or so hemophiliacs who died after contracting the human immunodeficiency virus associated with AIDS in the early to mid-1980s. Many of these were among the estimated 2,000 hemophiliacs in Japan who contracted HIV before authorities there approved the use of heat-treated blood products that did not contain HIV or hepatitis viruses; others contracted the virus after safe products were approved but before the last of the untreated products were pulled from the market in 1989. The indictment against Mr. Matsumura involves the latter time frame, when health officials merely urged industry to no longer sell blood products that were not heat-treated. The professional negligence charge is for not ordering a recall of nonheat-treated blood products when presumably Mr. Matsumura was aware that harm could come from using untreated products. The mixed character of officials' role — to help industry, protect consumers or both — comes to the fore in Mr. Matsumura's case.

NOTES

Japan's problem-prone rice program is in trouble again. Government-held rice inventories at the end of October were a budget-draining 3 million metric tons or so, double the amount the Ministry of Agriculture, Forestry and Fisheries regards as an adequate national reserve. More worrisome for MAFF decisionmakers and their Ministry of Finance overseers, absent policy reforms that are tough if not impossible to initiate in the current domestic political environment, excess stocks of rice will continue to build up for the rest of the 1990s. With rice consumption in Japan in nonstop decline, even an "average" domestic crop like this year's, which is projected around 10 million metric tons, can produce a bigger than desired carryover; a bumper harvest or two, such as last year's (more than 10.7 million metric tons) and 1994's (nearly 12 million metric tons), is a glut creator. Add in the increasing volume of foreign rice that Tokyo is committed to buy annually through FY 2000 under the minimum access terms of the Uruguay Round agreement's agricultural provisions — roughly 510,000 metric tons in the fiscal year ending next March versus approximately 410,000 metric tons in FY 1995, for example — and the potential for an ever-expanding oversupply of rice becomes enormous.

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