Based on these statements and on recent remarks made by Clinton Administration officials regarding the three candidates who were vying to replace Mr. Hashimoto as Prime Minister, we expect that U.S. officials will press Mr. Obuchi to abide by Mr. Hashimoto's promise to press forward with economic policies aimed at spurring Japanese economic expansion. In the short term, U.S. officials likely will renew calls for the adoption and implementation of bridge-bank proposals to address the current non-performing loan situation. At the same time, the United States will urge greater government spending and tax cuts to boost domestic demand. Briefing reporters on Friday, McCurry said it is "critical that the new government move quickly and with some measure of boldness" to "address the problems of the banking system, and to restore robust domestic and demand-led growth."
While U.S. officials in recent months have pushed Japan further to deregulate various economic sectors (including telecommunications and other areas that were the subject of side talks at the recent Birmingham G-8 Summit), the United States appears to be more concerned presently with the larger issues that more broadly impact on improving economic growth. Thus, while U.S. officials are likely to continue to mention deregulation in their public remarks, their emphasis in private discussions with the Government of Japan will more likely focus on bank reform and fiscal stimulus.
In fact, U.S. attention to Japan's economy is likely to intensify in the coming months. To date, it has appeared to most observers that the robust U.S. economy has been sheltered from the impact of the Asian financial crisis. However, amidst recent reports of a record U.S. trade deficit in May, market analysts are beginning to report that the Japanese economic downturn is having an effect on the U.S. economy. These reports are likely to spur Congress to take an even closer look at Japan's economic policies, which could result in calls for President Clinton to react strongly if Mr. Obuchi fails to adopt aggressive economic measures.