JAPAN ISOLATED, YEN RISES, WORLD FEELS CHEATED
Japan is becoming dangerously isolated
again as the U.S. And Europe feel they have been cheated by
Japanese promises to switch from export to domestic-led growth,
officials and businessmen from around the world said.
    As the dollar today slipped to a record low below 145 yen,
making Japanese exporters and holders of dollar investments
grit their teeth harder, Finance Minister Kiichi Miyazawa said
there was a perception Japan had reneged on its promise.
    The problem goes deep and centres on misunderstandings by
both sides over the key Maekawa report of April, last year.
    The document was prepared by a private committee formed by
Prime Minister Yasuhiro Nakasone and led by former Bank of
Japan head Haruo Maekawa. It recommended that to stop friction
due to its large trade surpluses, Japan must "make a historical
transformation in its traditional policies on economic
management and the nation's lifestyle. There can be no further
development for Japan without this transformation."
    Americans and Europeans took the report to heart and have
looked in vain for clear signs of this historic change. But the
Japanese remain doubtful about the short, or even medium term
prospects of totally transforming their economic habits.
    The bubble of frustration against what appears as Japanese
prevarication burst last week. The U.S. Said it intended to
raise tariffs of as much as 300 mln dlrs on Japanese exports to
the U.S. On the grounds Japan had abrogated a bilateral
semiconductor pact.
    British Prime Minister Margaret Thatcher threatened to
block Japanese financial firms from London after the Japanese
placed what the British say are restrictive conditions on a bid
by British firm Cable and Wireless to join a domestic
telecommunications joint venture.
    On Friday, European currency dealers said European central
banks, annoyed at restrictive Japanese trade practises, might
leave Japan alone to intervene to staunch the rise of the yen.
    Eishiro Saito, head of top Japanese business group
Keidanren, spotted the dangers inherent in such contradictory
views last November when he visited the European Community.
"Related to this matter of (trade) imbalance, the point that I
found to be of great cause for alarm during this trip to Europe
was the excessive degree of hope placed by the Europeans in the
results of the Maekawa report," he said.
    "We explained that the process of restructuring the economy
away from its dependence on exports toward a balance between
domestic and external demand...Would take time," Saito said.
    Saito's words were ignored. In February, EC Industrial
Policy Director Heinrich von Moltke came to Japan and said "I
only know that your government, under the leadership of
Maekawa, points to restructuring your economy into a less
outward looking, more inward looking one. It is the Maekawa
report which has attracted the most attention in Europe."
    And Europeans and Americans want quick action. "A far better
answer than protectionism would be structural change within the
Japanese economy, the kind suggested by the Maekawa report. And
we hope to see changes occur in the near future," visiting
Chairman of General Motors Roger Smith said in March.
    Such expectations are now ingrained, which was partly the
fault of Nakasone, who heralded Maekawa's report as a sea of
change in Japanese affairs, said U.S. Officials.
    Months before the report was issued, U.S. And EC business
leaders met their Japanese colleagues to discuss the trade
problem.
    "We are more anxious than ever that the new approach of the
Maekawa committee does lead to speedy and effective action,"
said EC Industrial Union leader Lord Ray Pennock.
    "The important implication of the Maekawa report is that it
is finally looking to let Japanese enjoy the fruits of their
labour," said Philip Caldwell, Senior Managing Director of
Shearson Lehman Brothers.
    Contents of the report were leaded well ahead of issuance.
    Japanese officials say they are implementing the report as
fast as they can, said a European ambassador who has travelled
the country asking about this issue.
    He said People mentioned many things in line with the
spirit of the report, including restructuring of the coal and
steel industries.
    A major misunderstanding is that the private report was
government policy. Europeans are confused about this,
underlined by von Moltke's reference to the "leadership" of the
Maekawa report. Even so, Japanese officials point to last
September's government programme of new economic measures.
"Without endorsing the report as policy, officials point out
that the government has put its signature to a programme
designed to implement the report," the ambassador said.
 REUTER
