232. Telegram From the Embassy in Japan to the Department of State0

1466. Dept please pass White House, Treasury, Interior, Agriculture, Commerce, Labor, Council Econ Advisers for Secretaries Udall, Freeman, Hodges, Goldberg, Under Secretary Fowler, Dr. Heller, Messrs. Feldman and Hatcher. Hakone.1



As seen from Tokyo on basis week’s perspective and close study of outpouring of interviews, articles, and commentaries in Japanese press, [Page 498]radio and TV, Embassy believes Hakone conference should be accounted great success. In its symbolic purpose Hakone provided dramatic demonstration to millions of Japanese overriding importance of U.S.-Japanese relationship. In Hakone’s substantive aspects we believe Japanese Govt derived real sense that, as President and Ikeda intended, genuine and equal consultations have taken place on economic matters of mutual concern. We would estimate that effect of these consultations will prove very helpful to our interests in fields of Japanese public opinion, in domestic political situation, and in development of GOJ’s fiscal and economic policies.

Impact on Japanese public opinion, setting of conference in bringing together principal political officials both governments concerned with economic affairs outside capitol city for two and half days frank talk across table on each other’s problems and policies was dramatic in itself. Press, radio, and TV followed and have continued report on Hakone as matter highest interest in Japan. While some editorial comment has criticized lack of specific results, such as U.S. commitment refrain from protectionist actions limiting Japanese exports to U.S. markets, on whole press has been satisfied with outcome. Public deeply impressed as well as flattered by “unprecedented participation of so many Cabinet members of both countries in conference” (words used in para 21 of communique at specific request Prime Minister Ikeda). Furthermore, press has made public fully aware of satisfaction of GOJ members of committee, and Japanese public has been deeply flattered and impressed by statements of President, Secretary Rusk, and other Cabinet officers on Hakone following return U.S. Del.
Of particular benefit to U.S. image in Japan was “sincerity” U.S. members of committee as it came through in press summaries of conference, in communique, in private meetings in press interviews, and as climaxed by TV interview of Secretary Rusk. Impression of friendliness toward Japan on part U.S. Cabinet members was most helpfully furthered by such extracurricular performances as Secretary Udall’s climb of Fuji, post-conference meetings and interviews of other Cabinet officers, and activities of Cabinet wives whose personal charm and interest in Japanese culture were widely publicized in Japan.
Effect on domestic political situations. One of most important effects of Hakone was its significance for future of Ikeda administration. Prior to conference, Ikeda’s position was sagging as combination of serious disequilibrium in Japanese payments, apparent upsurge trade protectionism in U.S., and formation regional economic groupings excluding Japan. These developments threatened to undermine twin pillars of Ikeda’s policy: partnership with U.S. and program to double national income within decade. Seepage of confidence in Ikeda and his [Page 499]policies was showing signs of developing into threat to domestic political stability.
At Hakone Ikeda very skillfully made his unofficial presence evident to Japanese public. By attending opening session and by private talks with Secretary Rusk, Ikeda reminded Japanese public that joint committee sprang from Kennedy-Ikeda talks last summer and conveyed impression that successful meeting was one of fruits of his U.S.-Japan “partnership” diplomacy. In so doing he limited political mileage Agriculture Min Kono and Trade Min Sato obviously hoped to get from active participation in discussion. At same time he managed preserve party and Cabinet unity to unusual degree in Japan and neither Kono nor Sato espoused different positions from those officially expressed in GOJ talking papers. Kono, who seemed resentful and disgruntled at start of conference, was later reported to be thoroughly satisfied with outcome and with his role. On balance it appears to us Ikeda gained most from conference in terms domestic political situation and that whatever subsequent favorable developments on economic scene can be attributed to it will strengthen his position as party leader.

At very least Hakone has won time for Ikeda. While there are obvious limits to continued decline in Japan’s reserves and tempo its economic activities beyond which Ikeda could not hold line or hope preserve his own political position, his immediate problem is to slow down excessive import push, to apply deflationary brakes, and to do both in ways which do not appear to represent bankruptcy his policies of partnership with U.S. and national income doubling.

Concepts of partnership and cooperation Hakone has strengthened have, we feel, greatly assisted Ikeda in giving him room to turn around as he adjusts economic policies to slower growth patterns. Over week-end2 Ikeda, in press conference, found it possible to refer almost casually to prospective measure of financial retrenchment and to next year’s growth rate as “somewhere” between three percent and ten percent. Fact that he could do so with little public outcry and with complete absence factional sniping inside his own party owes much to Hakone conference. Hakone may in fact have succeeded in producing indispensable factor for Ikeda’s survival beyond next spring, providing means to reinforce U.S.-Japan partnership while disengaging Ikeda from albatross of overly specific national income statistics and from personal identification with slogan of “9.2 percent annual growth over next three years.”

Implications for GOJ policies. At Hakone itself, acrimonious debate of narrow, specific issues was largely avoided while major policy problems were debated openly, frankly, and in friendly and respectful [Page 500]manner. Conference avoided opposite dangers “honorable picnic” with no substance which Japanese feared and hard bargaining session on specific problems with likelihood unimpressive results and impairment usefulness of committee from U.S. standpoint. In Japanese commentaries, major theme of discussion has clearly emerged as balance of payments problem both sides. Japanese public has been made aware its side argued that U.S. must allow and encourage greater imports from Japan to pay for steeply rising exports from us, and that U.S. countered that GOJ should regulate imports through more careful domestic economic policies, that over-all U.S.-Japan accounts (i.e., including invisible and capital items) gave much better picture, and that Japan must take approach of multilateral rather than bilateral balancing.
We would judge that inside GOJ Japanese believe that at Hakone they impressed U.S. members of committee with importance of U.S.-Japanese trade to both countries, with need to expand Japanese exports to sustain economic growth, and with significance of Japanese economy in free world trade and in aid to developing countries. We believe U.S. side was very effective in putting across its viewpoint. U.S. Delegation succeeded admirably in avoiding morass of conference debate on specific U.S.-Japan trade problems and in focusing on major issues (see Embtel 1349).3 In discussion problem of balance of payments management, U.S. Delegation brought home to senior officers GOJ importance of U.S. international responsibilities rather than concern for commercial interests, as basis for U.S. necessity for large surplus ordinary current account. Further, in discussion trade problems, while laying suitable stress on realities of U.S. situation and admitting possibility future difficulties, U.S. Del appeared to convince Japanese of continuing dedication Kennedy administration to liberal trade policies and prospect therefore of continued orderly expansion Japanese exports to U.S.
How long friendly aura diffused from Hakone will remain depends both on U.S. actions and on actions GOJ obliged take in dealing with internal economic problems of “overheating” and inflation and with external difficulties stemming therefrom. Statements of Chairman Heller and other U.S. members may help Econ Planning Minister Fuji-yama and Finance Minister Mizuta in shaping politically acceptable but forceful measures to dampen and control boom. Possibility still remains real, however, serious political difficulties could result if reduction in growth rate too steep, if unemployment should increase too noticeably by next summer, or if resort to emergency financial assistance from U.S. and IMF has to be much greater than now foreseen.
In circumstances, Japanese political leaders will unquestionably be watching closely in immediate future for demonstration of spirit of [Page 501]Hakone in U.S. economic policy decisions affecting Japan. Possibility of number of tariff increases adversely affecting Japan as result of recent escape clause recommendations by Tariff Commission poses obvious immediate danger. While Hakone may have given GOJ Cabinet members better concept U.S. problems in trade field, impression of sincere U.S. dedication to liberal trade policy would hardly survive series of protectionist actions following closely on Hakone conference.
  1. Source: Department of State, Central Files, 411.9441/11-1361. Confidential.
  2. See the source note, Document 231.
  3. November 11 and 12.
  4. Not printed. (Department of State, Central Files, 411.9441/10-2961)