'Recession may undermine Japan's role'

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Yomiuri Shimbun

Japan's role in the global economy may diminish if its recession continues, Deputy Minister for Financial Affairs Haruhiko Kuroda of the Finance Ministry said in an interview with The Yomiuri Shimbun.

Kuroda will accompany Finance Minister Kiichi Miyazawa to Saturday's meeting of the Group of Seven economic powers' financial ministers and central bank governors in Palermo, Italy.

"As Japan's economic slowdown lingers, other nations may be losing faith in the economic role that Japan can play," Kuroda said.

Yomiuri Shimbun: What will be the focal point of the G-7 meeting?

Kuroda: G-7 nations are primarily concerned about how long the U.S. economic slowdown will last and how deep it will hit, and about how the new administration of U.S. President George W. Bush deals with it.

What is your forecast for the U.S. economy?

I personally think it will experience low growth or no growth during the first half of the year, and return to a 3 percent growth level during the second half. Overall, the economy should be able to maintain a 2 to 2.5 percent growth rate throughout 2001.

The reason for my forecast is, first of all, U.S. companies are highly sensitive to a decline in demand and quick to cut production. Secondly, the U.S. government has great flexibility in the economic measures it takes. My supposition is that it will implement flexible monetary relaxation measures for the time being so that it can then take fiscal measures--such as the large tax cut that is predicted by the second half of the year.

What are the reactions from G-7 nations over the Bank of Japan's monetary relaxation measures, including the cut in the official discount rate?

In Japan, the price of commodities keeps falling, which naturally can be considered deflation. It is not a fiscal measure, but a monetary measure to suppress deflation. In that sense, (I don't know) if they see the recent relaxation measures as being sufficient or not.

No one had been predicting that the discount rate would be cut. I hope they take the measure favorably. The government and the central bank read the economy very differently in August (when the central bank lifted the zero-interest rate policy), but such discrepancies in their views of the economy have been narrowing recently. I am glad that things are as they are ahead of the G-7 meeting.

What will G-7 nations expect from Japan?

In light of the slowdown of the U.S. economy, there seems to be an increasing call that Japan should lead the global economy. But on the other hand, such expectations of Japan may be fading. If so, we need to take it very seriously.

Since Japan has long had low-economic growth--1 percent on average during the 1990s--the other G-7 nations may well feel that they have waited too long. Although Japan has become a mature economy--on a par with that of the United States and western Europe--our G7 partners probably are of the view that Japan should have a sustainable economic growth of at least 2 to 3 percent.

The Daily Yomiuri

-- spider (spider0@usa.net), February 15, 2001


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