The United States is ready to help the yen again if need be, but the currency will continue to languish unless Japan moves quickly to clean up its banking system and spur the economy, a top U.S. financial official said Friday following urgent meetings with the Japanese.
With the Japanese economy in its worst state in decades, Deputy Treasury Secretary Lawrence Summers and Japanese Finance Minister Hikaru Matsunaga met to discuss structural reforms. The goal, from the U.S. perspective, is to make the Japanese economy more open, accountable and consumer-friendly - something Washington long has been advocating, often to no avail.The visit comes at a precarious time for Japanese Prime Minister Ryutaro Hashimoto, whose Liberal Democratic Party is juggling the financial crisis and an upcoming election for the upper house of Parliament.
Hashimoto's Cabinet has taken the brunt of the blame for Japan's feeble economy. A poll this week by the Yomiuri newspaper showed support for his government at an all-time low of 29.9 percent. But despite his inaction on the economy, his party remains the most popular and is expected to fare well in the July 12 elections.
Perhaps the most pressing issue on the table Friday was the $563 billion in bad debt bogging down Japan's banking system. Fears about the health of Japan's banks rose Friday after a credit downgrade by Moody's Investors Services sparked frantic selling of the stock of a major bank - Long-Term Credit Bank of Japan Ltd.
After his meetings with U.S. officials, Matsunaga called an impromptu press conference, insisting: "There is no evidence that a Japanese bank might fail."
Summers, who described Friday's talks as "very good," and Matsunaga welcomed the results of a joint U.S.-Japan action this week to aid the ailing yen: a 7-yen gain against the dollar in three days. But U.S. officials repeated their message that there are no easy fixes to Japan's problems - rising unemployment, low consumer confidence and weak stock and currency markets, among oth-er things.
Though officials said the United States was ready to help again to shore up the yen, Kyodo News reported that Summers said the Japanese currency could plunge anew without decisive action by Tokyo. The dollar bought 136.84 yen in afternoon trading Friday, down 0.04 yen from late Thursday in Tokyo.
Summers and other U.S. finance officials were hastily dispatched to Tokyo over fears that a weakening of the yen - and entire Japanese economy - could plunge Asia into an even deeper financial morass.
The government announced last week that the Japanese economy shrank in 1997 for the first time in 23 years, heightening worries that Tokyo is not doing enough to get its house in order.
In a move that could help boost the economy and his standing in the polls, Hashimoto reportedly has decided to slash corporate and income taxes.