NO. 25 &emdash; July 4, 1997


Feature Article


Attention on Capitol Hill to competitor/collaborator Japan has dwindled to the point that Japan-focused hearings, once routine, are exceptions now. While the much-publicized problems of a stumbling Japanese economy in the 1990s have reduced earlier American anxieties about Japan as a threat to U.S. economic interests at home and abroad, some legislators recognize the need to remain up-to-date on the U.S.-Japan relationship in its many dimensions and on developments in the Japanese economy, still the world's second-largest. One such lawmaker is Sen. Craig Thomas (R, Wy.), chairman of the Subcommittee on East Asian and Pacific Affairs, Committee on Foreign Relations. In mid-April he convened a panel of expert witnesses from the Clinton administration and the private sector to brief members on the current state of the broad transpacific relationship and the factors shaping it. Arthur J. Alexander, president of the Japan Economic Institute, gave the subcommittee the following overview of U.S.-Japan economic relations and outlook for the Japanese economy.

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Weekly Review

Tankan Surprises by Douglas Ostrom

The Bank of Japan's quarterly survey of short-term business conditions is widely believed to be an accurate indicator of the direction in which the central bank sees the economic wind blowing. As such, the tankan released June 25 &emdash; which showed that, by a margin of seven percentage points, leading manufacturers were optimistic about the future &emdash; potentially was an important predictor of interest rates. The extent of optimism among this key group, up from a two-point margin in the March survey, could be taken as a sign that BOJ may be about to reverse what is viewed as a particularly expansionist monetary policy. Nonetheless, other factors, some of them peculiar to the latest survey period, are likely to make central bank decisionmakers cautious about using the new tankan as a basis for changing policy.


Japanese Firms Warily Watch Hong Kong Reversion by Jon Choy

The sizable Japanese business community based in Hong Kong watched warily June 30 as Great Britain, ending 156 years of rule, returned control of the approximately 400-square-mile colony to the People's Republic of China. While every one of the Japanese executives responding to a newspaper survey said that they did not expect the political switch to have any negative impact on Hong Kong's business environment, two-thirds indicated that they would wait and see whether the new Chinese administration imposes regulatory or other restrictions on the free-wheeling market economy. In fact, however, Japanese businesspeople expect that Hong Kong's integration into the PRC actually will give their companies better access to the rapidly growing Chinese economy.


Hosokawa Resignation Prompts Political Speculation by Barbara Wanner

The June 18 resignation of former Prime Minister Morihiro Hosokawa from Shinshinto has intensified speculation in Tokyo about a political realignment that would merge a good portion of the right-leaning party, the main opposition force, with the conservative, ruling Liberal Democratic Party. Mr. Hosokawa has denied any intention of joining the LDP or another party or of establishing a new party. Formerly a LDP member, he founded the Japan New Party in 1992, which two years later joined with several other right-leaning, non-LDP parties to form Shinshinto.


Aviation Talks To Resume; Progress Likely by Arthur J. Alexander

The United States and Japan will restart their long-running series of aviation talks July 8 and 9 in Portland, Oregon. This time out, the prospects for significant breakthroughs are more likely than at any point in the past several years. Both sides seem willing to modify their hard-line positions in favor of practical, workable solutions that would bring benefits to most parties and, equally important, would go a considerable distance toward each side's ultimate goals.



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