No. 8 — March 1, 1996


Return to Text

Chronology of U.S.-Japan Relations and Japanese Economic Developments in 1995



The World Trade Organization is launched. A product of the December 1993 Uruguay Round agreement, the WTO has a broader mandate as an arbiter of international trade rights than the predecessor General Agreement on Tariffs and Trade. The United States and Japan are among the 77 inaugural members.


Tokyo and Washington agree to restart by the end of January negotiations on transpacific trade in automotive products. The high-profile talks, part of the Clinton administration-conceived U.S.-Japan Framework for a New Economic Partnership, have been on hold since September 1994 because of fundamental differences between the two governments on what is negotiable. Political considerations dictate the timing of the decision to return to the bargaining table. With Prime Minister Tomiichi Murayama scheduled to meet President Clinton at the White House January 11, Japanese economic and foreign policy decisionmakers worry that a continuing deadlock over the ground rules for the negotiations will shift the summit's expected focus from cooperative aspects of the U.S.-Japan relationship to areas of discord. Tokyo had sought the official visit to reaffirm the importance of bilateral ties in advance of the 50th anniversary of the end of World War II.

The yen kicks off the 1995 trading year in Tokyo by dipping to its lowest level against the dollar since mid-August 1994. Foreign exchange traders attribute the drop in the Japanese currency to ¥101.16=$1.00 in part to the divergent economic prospects of Japan and the United States. While the Japanese economy finally is starting to show some signs of life after limping along for roughly four years, the recovery is likely to be unusually slow and vulnerable to setbacks. The American economy, in contrast, is expected to remain on a moderate expansion path.


Japan is prepared to participate in an $18 billion international effort to halt the slide of the Mexican peso, says Finance Minister Masayoshi Takemura in advance of a visit to Tokyo by Mexico's foreign minister.


The Ministry of Finance and the Department of the Treasury announce final agreement on a package of measures designed to inject more competition into Japan's financial services market. In what the Clinton administration counts as the key win American and other investment advisers will gain the right to manage pension monies collected by the government — a business currently limited to trust banks and life insurers. Foreign asset managers also will have greater access to the corporate pension fund market. The framework pact includes changes in other asset management rules as well as in regulations affecting corporate securities and cross-border financial transactions and provides greater administrative transparency and procedural protections. The top U.S. financial services negotiator, Under Secretary of the Treasury for International Affairs Lawrence Summers, calls the agreement "the most significant change in Japanese financial services through negotiations since the 1984 yen-dollar talks." He also says that the accord proves the effectiveness of the White House's much-criticized Japan market access strategy.


Prime Minister Murayama and President Clinton accentuate the positive in the battered transpacific relationship during a two-hour White House meeting that is low-key by the standards of recent one-on-one talks between the leaders of Japan and the United States, including two previous Clinton-Murayama get-togethers. Bilateral cooperation on regional and global political and economic issues forms the central theme of both the president's and the premier's formal statement to the press following their Oval Office discussions. In this environment trade issues deliberately are assigned secondary importance. Mr. Clinton does call on both governments to "redouble" their efforts to wrap up the negotiations on automotive products, the only priority framework area where agreement continues to elude Washington and Tokyo and the source of about 60 percent of the huge U.S.-Japan trade imbalance. Moreover, in media briefings administration trade officials stress that the White House will continue to press Japan to deregulate its economy and open further markets of particular interest to American companies.

Foreign Minister Yohei Kono, who accompanies Mr. Murayama to Washington, formally promises Japan's cooperation with the United States and other governments in setting up an $18 billion lending mechanism to support Mexico's skidding peso. A figure of $1 billion is penciled in for Tokyo. Major Japanese banks, however, are slow to join American and European banks in committing funds for a $3 billion commercial line of credit, part of the $18 billion loan package.


Japanese automotive makers are on track to reach their target of sourcing $19 billion worth of parts from U.S. suppliers for their North American operations and domestic plants in the year through March 1995, new figures from the Japan Automobile Manufacturers Association unexpectedly suggest. Until then it appeared that the Japanese industry would fall short of its FY 1994 parts purchasing goal, set under pressure from Ministry of International Trade and Industry officials in the days before former President George Bush visited Tokyo in January 1992. Corporate executives worry, though, that the news will give new impetus to the Clinton administration's drive to win commitments for significantly greater purchases of American-produced parts in the post-FY 1994 period. Gaining such pledges is one of three White House-drafted goals for the framework's automotive negotiations.


The worst earthquake to hit Japan in more than 70 years rocks Kobe, the country's sixth-largest city, and surrounding areas in the Kansai region before dawn. The human toll is enormous, with more than 5,300 killed, nearly 27,000 injured and at least 300,000 left homeless. Countless numbers of offices, stores and factories are leveled or severely damaged. Gas and water mains rupture, and power lines tumble; key transportation links are severed. Despite the massive destruction immediately apparent, most informed observers suggest in their first cut at an assessment that the earthquake is unlikely to delay further the economy's recovery. They expect the temblor's negative economic impacts to be localized and limited to just a few months. Over the medium term, these same analysts posit, the national economy might even benefit from the rebuilding of the Kobe-Osaka area.

The economy is edging closer to recovery, Economic Planning Agency analysts conclude in their closely watched monthly economic report, which is released on schedule despite the devastating Kobe-Osaka earthquake. They cite as encouraging signs improved sales and corporate profits, which come on top of slowly rising consumer spending, strong residential construction and brisk public works spending. Business investment, however, generally remains sluggish.


With Tokyo having promised to announce by the end of March a meaningful five-year deregulation plan, the Management and Coordination Agency releases 500 regulatory reform steps proposed by government ministries and agencies. Observers in Japan and elsewhere dismiss the list, saying that it contains few new ideas.


The United States and Japan continue to work toward a framework accord to promote foreign direct investment in Japan during a midlevel meeting in Washington. The Clinton administration is seeking an agreement that covers six areas: government facilitation, direct government promotion, tax incentives, deregulation, support of mergers and acquisitions and steps to make commercial property and workers more available.


U.S. Trade Representative Mickey Kantor says in a prepared statement that the January 1992 agreement covering Japanese public-sector procurement of computer hardware, software and services is working. That conclusion is surprising, given that U.S.-industry compiled data indicate that the foreign share of the government hardware market was exactly the same in 1993 as the year before.


Finance Ministry officials say that the government will compile two supplementary budgets to speed the recovery effort in the earthquake-devastated Kobe-Osaka area. The first, which will be drafted in early February, is expected to total several hundreds of billions of yen. The second could top ¥1 trillion ($10 billion at ¥100=$1.00). It will be send to the Diet after the start of FY 1995 in April.


Financial aftershocks from what is dubbed the Great Hanshin Earthquake hit the Tokyo Stock Exchange, where the Nikkei average of 225 first-section stocks plunges 5.6 percent to close at 17,785.49. A reassessment of the economic fallout from the quake triggers the steepest one-day TSE fall since August 1990 and the 12th-largest nosedive in the postwar era. Part of this loss is erased the following two days, leading some market watchers to project that the Nikkei will stabilize around 18,000. Others warn, however, that the TSE could lose another 10 percent of its value before hitting bottom.

The Great Hanshin Earthquake has little impact on the yen, which continues to trade in Tokyo at slightly above ¥100=$1.00. Exchange market analysts attribute this stability in part to the likelihood that the two primary yen-related forces at work in the coming months will have offsetting effects.


Midlevel Clinton administration officials call Tokyo's preliminary 500-point deregulation plan extremely disappointing during meetings in Washington of the framework's deregulation and competition policy working group. In November 1994 the White House tabled what was described as a "comprehensive" deregulation proposal. It contained seven basic principles that Washington felt Tokyo should use in compiling its promised package as well as 200-plus specific reform ideas spanning 10 areas. Few of these suggestions show up in the preliminary document. Some are rejected outright by the Japanese delegation; the rest, it merely says, will be studied.


The four major Japanese banks asked by the Mexican government to contribute $200 million each toward a $3 billion commercial line of credit announce that they will supply $100 million apiece.


Bank of Japan governor Yasuo Matsushita tells a press conference that the Kobe-Osaka earthquake will not derail movement toward an economic recovery.


Framework discussions on automotive products resume in Washington after a four-month break. Both sides bill the subcabinet-level talks in advance as a review session of where each stands on the three major issues on the table: deregulation of the aftermarket for parts in Japan; sales of foreign original equipment parts to the Japanese and American car and truck operations of Japan's automotive makers; and access for imported vehicles in the Japanese market. The meetings also are seen as a chance for Under Secretary of Commerce for International Trade Jeffrey Garten, the senior U.S. negotiator on automotive products, to get to know the new head of Japan's negotiating team, Yoshihiro Sakamoto, MITI vice minister for international affairs. Mr. Garten says that the White House wants to wrap up the negotiations before the end of March, a schedule that draws a noncommittal response from the Japanese delegation.


Next aaaa Return to Text

January aaaa February aaaa March aaaa April aaaa May aaaa June aaaa July aaaa August aaaa September aaaa October aaaa November aaaa December

 The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

Top aaaa Issue Index aaaa Subscriber Area aaaa Publications aaaa Home