Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

160. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, September 12, 1978

SUBJECT

• Letter to Fukuda

Attached at Tab A is a draft reply to the letter from Prime Minister Fukuda (Tab B)² that you saw. The reply has been cleared with State, Treasury, CEA, and Jim Fallows’ office.³

The judgment of our experts is that Fukuda’s 2.5 trillion yen stimulus is a good start but is not sufficient to achieve the 1½% growth increase that Fukuda pledged at the Summit for the Japanese fiscal year 1978 (ending March 31, 1979). Ushiba said, when he was here last week,⁴ that Fukuda will decide in November to send a second supplemental budget to the Diet in January 1979, if it appears that the 7% growth target is not going to be achieved. This would be more likely to affect growth in the Japanese fiscal year 1979 and 1978.

The Japanese are also taking some trade actions to reduce their external surplus; these, too, appear too limited.

We need to persuade the Japanese to take, before you go to Japan next year for the Summit, the additional growth and trade measures required to achieve a substantial reduction in their external surplus. Otherwise your visit will take place under the shadow of growing U.S.-Japanese recrimination. The attached reply was drafted with this in mind.

Tab A

Letter From President Carter to Japanese Prime Minister Fukuda ⁵

Washington, September 25, 1978

Dear Mr. Prime Minister:

Thank you for your letter of September 2.

The actions that you have taken reflect the spirit of international cooperation which was evident at Bonn. Your decision to expand domestic demand through additional public investments is a welcome step toward achieving the 1½% increase in Japan’s growth rate that you pledged at Bonn. I know that you are also taking additional measures to foster a more rapid reduction in Japan’s current account surplus. I am confident that if it appears in the next few months that your growth and current account targets are not being fulfilled, your government will take the additional measures needed to this end.

The fulfillment of our mutual Summit commitments will be vital to the success of the May 1979 Tokyo Summit. I have this very much in mind as I review the steps needed to fulfill the commitments that I made at Bonn.

My primary goal is to reduce the rate of U.S. inflation, both for domestic reasons and because this is a major cause of the foreign exchange disorders that concern us both. We are beginning to see some progress, as reflected in the decline of U.S. wholesale prices last month. But further measures are needed. I have a three-point program in mind:

First: I intend to carry out the tight fiscal policy that I described at Bonn. I am now looking for opportunities to reduce expenditures, in order to curtail the FY 1977 budget deficit. In January I will present to the new Congress an FY 1980 budget which should bring the deficit down still lower, to somewhere in the thirties of billions of dollars. This is causing a good deal of pain in the government departments concerned, but I will hold to this policy. In so doing, I expect to work closely with the Congress, which is sensitive to growing pressure by the voters for a reduction in government spending.

Second: We are considering how to strengthen U.S. Government efforts to restrain wage and price increases. Intensive staff work is now going on about possible new steps. I hope that we will soon be able to announce them.

Third: We will seek to ensure that U.S. Governmental actions do not contribute to inflation.

On the energy front, I have been working hard to persuade the Congress to pass key parts of the energy bill, especially the provision for phased de-regulation of natural gas, which would account for the largest part of the energy savings I pledged at Bonn. I cut short my vacation to resume this effort.⁶ By the time the Congress adjourns in October, we will see how successful the effort has been and what the implications are for future policy. I take the energy pledges that I made at the Summit seriously, and mean to fulfill them.

Progress on both the inflation and energy fronts should strengthen the dollar and thus help to meet the concerns that you have expressed to Ambassador Mansfield.⁷

I am confident that the post-Summit actions which have been taken, and which will be taken, by the Japanese, German, and American governments will lead to improved world economic prospects. This will be a difficult and prolonged process, but we have made a good start. I welcome your letter as evidence of our continuing cooperation in this process.

Sincerely,

Jimmy Carter

1. Source: Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 11, Japan: Prime Minister Takeo Fukuda, 1–12/78. No classification marking. Sent for action.
2. Tab B, attached but not printed, is a September 2 letter from Togo to Carter transmitting a September 2 message from Fukuda on Japan’s economic stimulus package. Carter initialed at the top of Togo’s letter.
3. In a September 22 note to Carter, Brzezinski noted that he had held back the draft letter “until the conclusion of the Camp David Summit and in the belief that it would be strengthened if you could refer to passage of the natural gas legislation. I think it best not to delay any longer.” (Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 11, Japan: Prime Minister Takeo Fukuda, 1–12/78) The Camp David Summit took place September 5–17.
4. Ushiba and Minister of Agriculture Ichiro Nakagawa visited Washington for talks with Strauss and U.S. officials September 5–7. Telegram 228538 to Tokyo, September 8, transmitted the text of the STR press release issued at the end of the visit. (National Archives, RG 59, Central Foreign Policy File, D780367–0177) Telegram 231273 to Tokyo and the Mission in Geneva, September 12, provided a summary of the talks. (National Archives, RG 59, Central Foreign Policy File, D780371–0683)
5. No classification marking.
6. Carter vacationed in Georgia, Idaho, and Wyoming August 18–30. (Carter Library, Presidential Materials, President’s Daily Diary)
7. Possibly a reference to an August 16 discussion in which Fukuda told Mansfield that “he was particularly worried about the declining value of the dollar. As a key currency, if the dollar’s credibility were to be lost, it would become virtually impossible for other economies to maintain orderly and stable management.” Fukuda asked Mansfield to report his concern. (Telegram 14808 from Tokyo, August 17; National Archives, RG 59, Central Foreign Policy File, D780335–1005) See also footnote 4, Document 154.