Pump Priming

A strong yen is slowing the pace of Japanese exports, but Tokyo is still feeling the pressure to shrink its swollen foreign trade surplus. Last week Japanese Prime Minister Yasuhiro Nakasone took new steps--or perhaps half steps--to meet those international pressures by vowing to change the habits of his country's 120 million thrifty citizens. On the eve of a weekend visit to Camp David to discuss the seven-nation annual economic summit that Japan will host in May, Nakasone accepted a report by a Cabinet advisory committee that outlined ways to wean the Japanese away from an export-led economy by boosting local consumption. During his scheduled three-hour session with President Reagan, the Prime Minister was expected to explain how his government would translate those aims into policy. Said Nakasone: "Japan can no longer be an island of solitary prosperity, with a large current account imbalance depending on exports."

In fact, steps suggested by Tokyo's ponderously named Ministerial Conference for Economic Measures amounted to little more than some mild domestic pump priming. Nakasone's government was advised, for example, to speed up public spending on construction projects that are already planned. An official of Japan's economic-planning agency estimates that 78% of those projects scheduled for the second half of fiscal 1986 could begin six months earlier. That action would spur construction firms to order materials and hire workers sooner than they had planned. Utility companies were urged to lower their rates. Banks were encouraged to lower interest rates on housing loans to 5.25%, from 5.5%. Finally, the report asked that "efforts be made" to reduce international air fares, which run 24% higher in Japan than in the U.S.

The measures were aimed at increasing the spending power of Japanese consumers, who have one of the world's highest savings rates (15% of annual income, vs. 4% in the U.S.). But few of the proposals offered much immediate solace to frustrated American exporters as they contemplated a Japanese trade surplus with the U.S. that totaled $50 billion last year. Washington had no official reaction to the Japanese plan prior to the Reagan-Nakasone meeting. Nonetheless, I.M. Destler, a senior fellow at the Washington-based Institute for International Economics, declared that "these are steps in the right direction, but the Japanese have a substantial way to go." Nakasone acknowledged that changes in Japanese spending habits would not come easily. Said he: "This question of restructuring is as difficult as a junior high school student trying to scale Mount Everest. But we think that we can do it, and it will be done." The question that remained: When?