Bush visits economically-struggling Japan

by Hans Greimel
The Associated Press

TOKYO ­ When President Bush and Prime Minister Junichiro Koizumi last met, the American president heaped praise on his Japanese counterpart as a tough-minded economic reformer and strong leader.

Just four months later, with Bush making his first state visit to Japan, Koizumi's grip on power is slipping, his public approval rating is crumbling and his reform measures are apparently losing steam.

The once popular premier is under siege at home from political infighting and under pressure from abroad to keep Japan's worsening economic slump from spilling over globally.

“This is not the same Mr. Koizumi that Bush met last year,” said Shigenori Okazaki, a political analyst in Tokyo for the investment firm UBS Warburg. “Bush is looking for a strong and sound Japan. But Koizumi is much weaker.”

While the prime minister can expect another pat on the back from his guest for sending Japanese warships to the Indian Ocean to bolster the war on terrorism, he can also reckon on some prickly advice as Bush reminds of the urgent need to rekindle the world's second biggest economy.

Japan's economic woes are serious.

The country is mired in its third recession in a decade, with unemployment at an all-time high of 5.6 percent. Banks are saddled with billions of dollars in bad loans, and deflation is wiping out the value of property they hold as collateral.

Consumers aren't spending, corporate bankruptcies are on the rise and investors are dumping the yen. Japanese stocks and government bonds over doubts about Koizumi's reforms.

That is not only a domestic problem. The slump is a drag on the whole world because Japanese are spending less on imports and investing less abroad. A deeper slide in the economy could make the global recession even worse, just as Washington is hoping for a turnaround in North America.

Koizumi swept to power last year on a reformist ticket vowing to sweep away pork-barrel politics and revive the economy with painful restructuring measures, but the promise is largely undelivered.

His recent plunge in opinion polls, largely because of the firing of well-liked Foreign Minister Makiko Tanaka, has led some analysts to deem the reforms dead.

Koizumi's spokeswoman, Misaki Kaji, said that Koizumi “needs confidence in the market as well as from the public” and added that the prime minister hoped Bush would help breathe new life into the initiative.

“Everybody, not only in the U.S., but in the rest of the world, is interested to see how the Japanese economy will revive and to what extent Mr. Koizumi will stick to his original policies,” Kaji said. “If the two can jointly send a message, it would be very supportive to Mr. Koizumi.”

Yet ahead of Bush's visit, the fifth meeting of the two leaders, it appeared patience was wearing thin in Washington.

The president's own Economic Report, released earlier this month, called the Japanese economy “moribund” and criticized rescue efforts as doing “little thus far to improve the country's economic prospects.”

Treasury Secretary Paul O'Neill, who recently accused Japan's government of intentionally forcing down the value of its currency, piled on more pressure by asking Japan to resume its role as an engine of world growth.

Before Bush's trip, Koizumi scrambled to show some signs that he is still serious about reforms.

New Foreign Minister Yoriko Kawaguchi added a spark of hope last Tuesday by announcing tough reforms for her scandal-riddled bureaucracy to reduce influence peddling.

But most attention was on the government's last-minute effort to come up with a plan for ending the overall decline in prices that is hobbling the economy. Deflation is a serious obstacle to Japan's turnaround because it brings down income, spending and investment.