U.S. Officials Continue to Decry Failure of the Government of Japan to Respond to Economic Situation in Japan as Yen Continues to Fall

U.S. criticism of the Government of Japan's failure to boost domestic demand in the Japanese economy continued last week as the yen fell to an eight-year low against the U.S. dollar last Friday, and Japan reported that it had technically entered into a recession. Comments by U.S. officials regarding the drop in the value of the Japanese currency indicate that U.S. policy over the last six months — to push Japan strongly to take active steps to boost demand — has been ineffective.

In particular, Treasury Secretary Robert Rubin in testimony before the Senate Finance Committee last Thursday stated, "I think the question is, what can we do?" Rubin referred to the various demands made by the United States this year, including demands that Japan introduce a strong fiscal stimulus package, tax cuts and banking reform to address the issue of nonperforming loans held by Japanese banks.

Rubin indicated that despite U.S. demands and Japan's adoption of some of these measures, the "weakness in the yen reflects the economic conditions in Japan and can only be remedied by restoring economic strength in Japan." (Notwithstanding those comments, the Treasury moved on Wednesday in coordination with the MOF to boost the yen in world currency markets.)

Amidst such signs of frustration by U.S. officials, some commentators have begun suggesting that the United States should take the more drastic step of downgrading its diplomatic relations with Japan. In particular, Brookings Senior Fellow Edward J. Lincoln (who formerly served as Special Economic Advisor to Walter Mondale while Mondale served as U.S. Ambassador to Tokyo) has suggested that Japan needs a dose of "tough love" in light of his view that U.S. efforts over the last six months have failed to have a serious impact on Japan and its efforts to improve its economic situation.

Lincoln suggests that a "modest downgrading of daily interaction" by U.S. officials with Japanese officials (e.g., not promptly returning phone calls, postponing meetings) would threaten Japan's image as a "great power." Such action by the United States "might finally get the message across about the depth of [U.S.] concern."

There is no indication whatsoever that U.S. officials have considered adopting Lincoln's somewhat extreme suggestions, and a recent Washington Post editorial characterized those types of proposals as "kicking Japan." However, the frustration apparent in the statements by senior officials suggests that the U.S. Government is searching for more effective measures to force the Government of Japan to adopt more aggressive steps regarding its economy.