Foreign Relations of the United States, 1969-1976, Volume XIX, Part 2, Japan, 1969-1972

93. Minutes of a Senior Review Group Meeting¹

Washington, September 7, 1971, 4:05–4:57 p.m.

SUBJECT

• Japan

PARTICIPATION

• Chairman—Henry A. Kissinger

• State

  • Mr. U. Alexis Johnson
  • Amb. Winthrop Brown
  • Mr. Nathaniel Samuels
  • Mr. Philip Trezise

• Defense

  • Mr. G. Warren Nutter
  • Rear Adm. William Flanagan

• JCS

  • Adm. Thomas H. Moorer
  • Brig. Gen. William Burrows

• CIA

  • Mr. Richard Helms
  • Mr. Maurice Ernst

• Treasury

  • Mr. Paul Volcker ²
  • Mr. John McGinnis

• OMB

  • Mr. Kenneth Dam

• CIEP

  • Mr. Peter Peterson
  • Mr. Richard Allen
  • Mr. Deane Hinton

• NSC Staff

  • Col. Richard T. Kennedy
  • Mr. John Holdridge
  • Mr. Robert Hormats
  • Rear Adm. Robert Welander
  • Mr. Mark Wandler

It was agreed that:

—The President’s Memorandum of September 7 to the Secretary of State on the U.S.-Japan Joint Economic Committee Meeting will be strictly adhered to by all agencies.³ If any agency has an objection to the memorandum, it would register that objection with the White House for adjudication.

—The economic agencies should not discuss political issues with the Japanese ministers and Mr. Johnson should monitor the meeting from a political point of view.

—Every agency will keep other agencies informed of all significant conversations with the Japanese ministers.

—The State Department will prepare and circulate a draft communiqué.

Dr. Kissinger: I thought we should have a fairly brief session on the upcoming Econ Com meeting. Given the importance we attach to this meeting and given the decision by the Japanese emissaries to work all the side streets in town, I thought we ought to go over the issues as they have been resolved.

The President will sign this afternoon a decision memorandum which is close to what everyone has proposed. Perhaps I can go through it. In any case, it will be distributed later this afternoon.

I presume you have all seen the State paper [Secretary Rogers’ memorandum to the President of September 1] and the CIEP paper [of August 24].⁴ Is Treasury here?

Mr. McGinnis: Yes. Paul [Volcker] will be here in a few minutes.

Dr. Kissinger: I didn’t want you to think you were disassociated from us. I don’t know if I should run through the memorandum because the President has not signed it yet. Basically, it follows the Secretary’s memorandum and the CIEP paper. They are all close together. We will distribute the decision paper later this afternoon, and, if there are any objections, we should know what they are. (to Mr. Johnson) Alex, why don’t you lead off the discussion? What do we want to get out of the meeting? What line should we take?

Mr. Johnson: All of that is basically in the Secretary’s memorandum, and it’s hard to improve upon it because I had a hand in its drafting.⁵

We tried to be as succinct as possible in the paper. We have, on the one hand, the objective of preserving and strengthening our relationship with Japan. We all agree that it is vitally important to maintain this relationship.

At the same time, we should try to persuade the Japanese ministers to accept the fact that they have to take early and effective measures to establish an appropriate balance in Japan’s external economic relationships, including those with the United States. Of course, we’re not out to make enemies of the Japanese, either.

We have found that our economic relationship has been mutually beneficial. In recent years, however, our economic and trade relationships have been distorted. Now we have to try to convince the Japanese that our trade and economic relationships have to be redressed. We should point out to them that we are not singling them out and that we have problems with the rest of the world, too, but to a different degree.

Above all, we have to impress upon the Japanese that we expect some readjustment of the exchange rate. They have already taken some steps in this direction. The floating of the yen has resulted in some revaluation—just about 7 percent—but this amount is considered by everyone to be inadequate. We must get across to them that we want a major readjustment. However, we will not negotiate monetary policy at the meeting; it will be done in a multilateral framework. The first step in that direction was taken last Friday at the Group of Ten meeting in Paris which Paul Volcker attended. The next meeting, I believe, is on September 15 in London. As I said before, we will not seek to negotiate a bilateral agreement with the Japanese at the Econ Com meeting.

The other side of the spectrum is getting Japan to open up her trading. A revaluation of the yen should make the terms of trade more equal and should improve our ability to sell in Japan. At the meeting, both we and the Japanese should set forth the steps we are willing to take. The big problem is the speed with which the Japanese can move on this. The ability of Sato and his government to move is circumscribed by the traditional Japanese attitudes and by the dissent in the Cabinet and the LDP Party on the Chirep issue. Chirep is the most divisive issue in the Japanese political world right now. It is even more important than the economic issue. The Japanese are engaged in their own great China debate. No matter how hard we push or urge them to move, we cannot expect dramatic results from the meeting. Many of us hoped for and talked about dramatic steps which the Japanese might make, but this will not be the case. Fukuda and the Foreign Office have been pursuing a policy similar to our own. However, they have not been able to move the Japanese ministries to the degree that would enable Fukuda to take dramatic steps.

Phil [Trezise] has been in Tokyo recently, and perhaps he can fill us in on the mood there.

Mr. Trezise: Basically, I’d like to underscore what Alex [Johnson] said. The Sato government is in its last months, and the ministries are not anxious to go through with the exercise. Some of the ministers are in competition for top jobs in the new government. In the Ministries of Agriculture and Finance, where the hard decisions must be made, the bureaucrats are not ready to go along with Fukuda. The situation there reminds me of the last months of the Kishi regime.

Mr. Volcker entered the meeting at this point.

Mr. Johnson: We are fortunate that Fukuda is the Foreign Minister and the leader of the delegation. He has long experience on the financial side. Given the Japanese system, though, he has certain limits on how far and fast he can move. The Japanese have an admiration for our ability to move. They admire the fact that the President can make a decision and then have it carried out. They can’t act that way because it is not in the Japanese tradition and because Sato is a lame duck.

Mr. Trezise: There’s one other thing I would like to mention. By Japanese standards, their economy has been in recession for quite a while. While they are providing a big fiscal stimulus in an expanded public works program—about the equivalent of $20 billion in the U.S. economy—it will take some time before its effects are felt. No one expects their economy to be in high gear until the second quarter of next year at the earliest. This is the first time they have had to bring the economy back from a self-induced slowdown, and no one knows how long it will take. The surcharge and even a limited revaluation have a deflationary effect. The Japanese ministers will of course, be taking all of this into consideration.

Dr. Kissinger: (to Mr. Peterson) Pete, what do you think?

Mr. Peterson: (to Mr. Trezise) Phil, I just received two conflicting reports on textiles.

Dr. Kissinger: Both of them are probably true.

Mr. Peterson: (to Mr. Trezise) What is your assessment?

Mr. Trezise: I was told on Wednesday that Fukuda had met with the industry and that he was stonewalled. He put on a good performance, I understand, and he went back the following day, but there were still no more results.

Mr. Peterson: Is it likely then that they will come here with nothing?

Mr. Trezise: That’s right.

Mr. Johnson: The signs point to that.

Dr. Kissinger: (to Mr. Peterson) What do you think of the substance of what we should all say?

Mr. Peterson: It’s not clear to me what emphasis we are going to put on the balance of payments goals. Do you think we should talk to them in specifics?

Mr. Johnson: You saw our memorandum and the draft of the Secretary’s opening remarks.⁶ We put an adjustment of the exchange rate and revaluation at the top of the list. We presume these subjects will be discussed somewhat in the large group and by Connally and Mizuta [Japanese Finance Minister] in private.

Mr. Volcker: We thought that would not come up for discussion in the large group.

Mr. Johnson: It probably will be discussed, but in broad terms.

Mr. Volcker: Will we go beyond those broad terms?

Mr. Johnson: Probably not.

Dr. Kissinger: Will we discuss percentages?

Mr. Volcker: Needless to say, the percentages are very important.

Mr. Johnson: We will make it clear that we won’t negotiate percentages in the meeting.

Dr. Kissinger: Can we say something about percentages privately?

Mr. Volcker: I don’t think we should be very specific. We gave them an indication that we wanted a bigger revaluation.

Mr. Samuels: You know, if we go through the various measures we want them to take, there is not one item where they are not already doing something. It’s a question of getting them to accelerate and expand those measures. We have to tell them that they are not doing enough. I think it’s important to make that point.

Mr. Volcker: Phil’s point about the recession is important. Do we recognize it in any of our papers?

Mr. Johnson: Yes, we do—in the Secretary’s opening statement.

Mr. Volcker: Secretary Connally will probably discuss in some depth our balance of payments problem. He will point out that our multilateral objective is to achieve a rough balance, and we hope the Japanese can accept that.

Mr. Johnson: Hopefully, we will also get a response on this subject in the general meeting. I don’t know what they will say about their balance of payments.

Dr. Kissinger: I have two concerns. The first is the problem we could have if we all say something different to the Japanese. If we disagree, we should know it now and get it resolved so that they don’t go from agency to agency, brokering our views. I assume the President’s memorandum will be scrupulously adhered to. There should be no variation from it—either on the tough side or the soft side—and we will present a united front. The tough decisions that they have to make will be delayed if they see disunity on our side.

Mr. Johnson: I’m glad you said that. We know the proclivity of the Japanese for using the back door, with such things as special meetings and emissaries. I have gone through it for years. To the degree that we can force the Japanese to deal with us in the established channels, the better off we will be.

Dr. Kissinger: That is also the President’s view [have the Japanese deal with us in established channels].

I guess I should read the memo the President is sending to the Secretary of State. If someone cannot live with this memo, we had better hear about it right now.

(Reads memorandum through point 3.)

Mr. Volcker: How did we come up with those figures? [referring to the last sentence of point 3, which reads: “While negotiations on the exact amount of yen revaluation sought should be carried out multilaterally, Secretary Connally is authorized privately, if he wishes, to inform the Japanese Ministers that a revaluation in the range of 15 to 20 percent is necessary.”]

Dr. Kissinger: If you think the figure [for revaluation] should be bigger, we should know about it.

Mr. Johnson: Is it credible to start out with a higher figure than 20 percent?

Mr. Volcker: Yes, I think so. If we start out by saying 15 to 20 percent, we will end up with 15 percent, and that’s not enough.

Dr. Kissinger: This is the sort of point we should know about now.

Mr. Volcker: If we want a 15 percent adjustment overall, I think we should start out with a bigger figure than 20 percent.

Mr. Samuels: Should we tell the Japanese that it would take more than a 20 percent revaluation to bring our trade account into bilateral balance?

Mr. Volcker: No. I didn’t say we should tell them that.

Dr. Kissinger: The Japanese will not be forced to say anything. If we say, however, that we want more than a 15 to 20 percent revaluation, that would become more of a political point than an economic one.

Mr. Volcker: They might say they are thinking of an 11 percent revaluation, but they certainly would not expect us to say that.

Dr. Kissinger: They are not required to say anything. The 15 to 20 percent figure merely gives us a judgment of where we would like to end up. If we are going to say we want more than a 20 percent revaluation, we ought to know about it right now.

Mr. Johnson: I agree.

Dr. Kissinger: (to Mr. Volcker) Do you agree that if the Secretary feels like discussing a 15 to 20 percent revaluation, that would be all right? However, if he wants to discuss a higher figure, we ought to know what he will say.

Mr. Volcker: I assure you he will not want to talk about a 13 percent revaluation.

Dr. Kissinger: Can you assure us he will not say that a 25 percent revaluation is necessary?

Mr. Trezise: We came up with the 15 to 20 percent range as a result of interagency discussion.

Mr. Volcker: For an overall adjustment, we need a yen revaluation of 15 percent or more.

Dr. Kissinger: (to Mr. Peterson) Pete, what do you think?

Mr. Peterson: Paul [Volcker], as you know, the paper has a number that is in the ball park, as you gave it to us.

Mr. Volcker: I said I was cautious about the figures.

Dr. Kissinger: I think it would be better to distribute the President’s memorandum instead of reading the rest of it. Everyone will follow it, unless we are told about objections beforehand. If there are objections, the President will adjudicate them.

Mr. Volcker: Is it correct to say that nobody except Connally will discuss exchange rates?

Dr. Kissinger: That’s correct. No one except Treasury will speak about revaluation. As I said before, though, if you want to go beyond 20 percent, we ought to know about it.

Mr. Volcker: I understand.

Dr. Kissinger: I will have the memo distributed. That’s better than forcing you to react orally. I hope we can have your responses to the memo in the morning.

Mr. Peterson: On another matter, when I saw Ushiba [Japanese Ambassador to the U.S.] recently, he mentioned the mandarin orange issue. The Japanese want the right to sell mandarin oranges here. Hardin [Secretary of Agriculture] mentioned this problem to the President and told him that Illinois and two other states were not orange-producing states. Our response up to now has been that the Japanese not be allowed to sell mandarin oranges in places where our orange-producing trees might be damaged. Now that Cliff [Hardin] has volunteered three states where there are no orange-producing trees, perhaps we can be more forthcoming to the Japanese.

Mr. Helms: It sounds like bacteriological warfare to me.

Mr. Johnson: I think we can put something in the communiqué about it.

Dr. Kissinger: Is everyone prepared to speak about mandarin oranges?

Mr. Johnson: If Cliff wants to do something, it’s okay with me.

Dr. Kissinger: Let me return now to the second general concern I have. On the political side, we have a delicate problem. We want to reassure the Japanese and have their confidence in us restored. On the other hand, there is the China problem. We want to avoid creating the impression that we are in collusion with the Japanese on our China policy. Therefore, we must strike a delicate balance of friendship with Japan and not give the impression that they have a veto power over our China policy.

The worst outcome would be if we convinced the Chinese we were getting into bed with the Japanese, and if, at the same time, we antagonized the Japanese. This could happen, for example, if we follow an extreme economic policy against Japan and follow it up by issuing flowery statements of friendship. It could also happen if we have press leaks.

Mr. Johnson: You are right. That could happen.

Dr. Kissinger: (to Mr. Johnson) Alex, you should monitor the situation.

Mr. Johnson: I will. In this connection, let me bring up the matter of the Japanese purchasing arms here. We see no need to mention it in the communiqué. They will buy the arms if they are interested—and we know that. There would be no advantage—from either the Chinese or Japanese view point—in putting this in the communiqué.

Dr. Kissinger: I think we’ve covered the major points that had to be discussed.

Mr. Johnson: We should bear in mind that Fukuda’s main rival is Tanaka [Minister of International Trade and Industry]. Therefore, Fukuda has his own delicate problem within the delegation. In our dealings with the Japanese ministers, we have got to realize that there is feuding and fighting going on for Sato’s mantle. We have also got to remember that the Japanese system is Parliamentary, not Presidential.

Dr. Kissinger: I would think that the economic agencies would stay out of the political issues because of the impact it could have on the Japanese domestic scene.

Mr. Johnson: I agree. As I said before, China is the issue in Japan.

Dr. Kissinger: Anyway, no economic agency should have an interest in discussing the political issues.

Mr. Volcker: It’s good for us that the China issue has now become more important than the economic ones.

Mr. Johnson: No. It’s not good because it puts added inhibitions on Sato on the economic issues.

This should be an interesting meeting. A big problem will be the press, particularly the Japanese press, which is coming in full strength. The Japanese delegation is planning to have briefings on a regular basis.

We should consider the question of having a joint press conference at the end of the meeting. That’s the normal procedure, and failure to do so now would certainly be marked in Japan as a sign of our not being able to get together. On the other hand, if we hold a joint press conference, Secretary Rogers would be faced with a barrage of unanswerable questions.

Dr. Kissinger: Would it be better if Fukuda has a press conference of his own?

Mr. Johnson: I’m sure he will do so in any event. One alternative might be for Fukuda and the Secretary to hold back-to-back press conferences.

Dr. Kissinger: That could result in some discrepancies.

Mr. Johnson: That’s right. We have to know what our story is and what the Japanese will say. The Secretary has often asked: “If we don’t know what we want to say, how do we say it?” We will have to deal with some difficult questions. The press will want to know, for example, if revaluation was discussed and when the surcharge will be removed.

Dr. Kissinger: Those questions can be dealt with. The answer to the question on the surcharge is: “When external conditions permit.” The Secretary could also say that revaluation was discussed and that it will be negotiated in a multilateral framework.

Mr. Volcker: He’s sure to be asked what agreements came out of the meeting.

Mr. Johnson: The answer to that question is simple: “The agreement to disagree.”

We will circulate a draft communiqué and get all your comments and suggestions. Yoshino, the Japanese equivalent of Marshall Green for the U.S., is with the delegation. Phil Trezise will be getting together with him this evening to work on the communiqué. It will be tough to draft. Hopefully, though, we can get it to you tomorrow.

Mr. Trezise: Hopefully.

Mr. Johnson: Once we get a draft, we can circulate it and get your comments. In my experience, if there are 25 drafters, it’s not an effective way of producing a paper. We will have to have a small group working on the communiqué throughout the meeting.

There are a couple of other items I would like to mention. One is that the Secretary had suggested that he meet with his Cabinet colleagues before the meeting starts. In light of the President’s memorandum, though, I’m not sure we need this meeting.

Dr. Kissinger: Let’s wait until we see what the reaction is to the memo.

Mr. Johnson: Okay. We’ll wait. The other thing is that the President’s speech to Congress will cut in on the counterpart lunches because most of the Cabinet members will probably be on the Hill with the President. They won’t get back from the Hill until about 1:30. Therefore, I’m having my staff shift the counterpart lunches to Friday.

Mr. Volcker: That’s a good idea. Friday is better.

Mr. Johnson: I also hope the counterparts will accompany the Japanese ministers to the Kennedy Center on Thursday evening. I think that would be a graceful thing to do. I understand the President will be attending the symphony, but I don’t know how many Cabinet members will be going with him.

Amb. Brown: Will we be getting copies of the decision memorandum?

Dr. Kissinger: Yes, within the next hour. On a final note, let’s agree that everyone keep everyone informed of all significant conversations. And let’s agree that everyone follow the memo, unless objections are registered here.

Mr. Johnson: Let’s also stay in the proper channels. If I’m not informed about something, then the Secretary should be.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–112, SRG Minutes, Originals, 1971, [2 of 6]. Secret; Sensitive. The meeting took place in the White House Situation Room. Members of the NSC staff provided Kissinger with talking points for this meeting. (Memorandum from Holdridge and Hormats to Kissinger, September 6; ibid., Box H–059, Senior Review Group Meetings, SRG Meeting—Japan 9/7/71) Kissinger initialed these minutes on September 9. All brackets are in the source text.
2. Not present at beginning of the meeting. [Footnote in the source text.]
3. Document 94.
4. Document 92. The Council on International Economic Policy paper of August 24 is in the National Archives, Nixon Presidential Materials, White House Special Files, White House Central Files, Subject Files, Confidential Files, CF, CO 75, Japan 1/1/71–9/30/71.
5. According to the original minutes, Kissinger then said, “I’m glad to see that the Secretary [Rogers] has difficulty putting up with you, just as I do.” This comment was covered over with white correction tape.
6. The memorandum to which Johnson is referring is Document 92. Rogers’ opening remarks as delivered at the conference are printed in Department of State Bulletin, October 4, 1971, pp. 346–350.