87. Telegram From the Embassy in Japan to the Department of State1

19510. For Under Secy Cooper from Amb Mansfield. Subject: US-Japan Economic Talks. Ref: State 302526.2

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1. Summary: Ambassador conveyed talking points to Prime Minister Dec. 20. Fukuda outlined drastic fiscal policy measures he was taking to reach 7 percent growth target and expressed hope they would meet core of U.S. concerns. He was not specific on current account target. He said Ushiba would continue work on specific measures about which he had conveyed latest U.S. views to FonOff earlier. Meeting closed with expressions of hope that issues would be resolved to make mid-January Strauss visit possible. End summary.

2. Ambassador saw Prime Minister afternoon Dec. 20 to convey points in reftel.

3. Prime Minister thanked Ambassador for his help in preparing Ushiba mission and securing access for him to so many important Americans. He said he felt the visit had promoted good U.S.-Japan relations. Some issues remain to be dealt with but he is doing his best to resolve them by the end of the year or early next year.

4. Fukuda said his basic problem is how to deal with Japanese economy for next year. The seven percent growth target is the highest of any of the industrial democracies and he was now busily at work trying to develop measures to achieve it. He said his basic thinking was that Japan could not rely on exports but had to stimulate domestic demand. There are real problems in knowing how to best create domestic demand; long term investment which would usually be the major pillar is not too promising; consumption, while it will grow at a stable rate cannot be the leading factor; therefore the government sector must provide the main stimulus. He is therefore planning drastic emergency measures in fiscal policy to bring Japan to the seven percent target. Japan will be covering a 37 percent deficit by issuing bonds. Fukuda sees these measures as quite exceptional in the international community but since he sees the current situation as a real emergency he is planning major stimulus which will increase imports. As to exports, government cannot legally control them in a free market economy but he hopes for “correct” export practices assisted by the strong yen. A possible oil price hike might also affect import prices and all together should have a favorable impact on the current account balance. He said he hoped U.S. would agree that he was making extraordinary efforts responsive to the core of U.S. concerns on the macro-economic level.

5. He noted that Ushiba would be continuing to work on the other issues outside the macro-economic field.

6. Prime Minister made no specific comments on Ambassador’s presentation except to inquire what timing we envision for Strauss visit. Ambassador confirmed that if mutually satisfactory progress was made we would envision a visit around middle of January.

7. Prime Minister also inquired about prospects for U.S. domestic economy and trade balance for 1978.

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8. Embassy had conveyed detailed USG views to FonOff early afternoon Dec. 20 (State 302527).3 Fukuda appeared not to have been briefed on them.

  1. Source: National Archives, RG 59, Central Foreign Policy File, D780003–0458, D770474–1116. Confidential; Immediate; Exdis.
  2. Telegram 302526 to Tokyo, December 20, instructed Mansfield to meet with Fukuda about the U.S. response to the economic proposals delivered by Ushiba during his recent trip to Washington (see Document 81). (National Archives, RG 59, Central Foreign Policy File, D770473–0268)
  3. Telegram 302527 to Tokyo, December 20, transmitted the U.S. response to Ushiba’s proposals. While welcoming Japan’s 7 percent growth rate target for the coming year, the United States urged Japan to issue a policy statement on its intention to reduce its current account surplus; to offer “deeper than formula cuts on products of specific interest to the US and other countries” in the MTN; to enact structural changes in its trade policy; and to take steps to encourage imports, including the liberalization of selected quotas. The telegram suggested that it would help “Japan’s image as a liberal trading nation” if Japanese decisions on ways to reduce its current account surplus were “announced, perhaps in conjunction with Ambassador Strauss’ visit, as part of a set of measures aimed at implementing Japan’s intent to move into a current account deficit position and to increase access to Japan’s domestic markets.” (National Archives, RG 59, Central Foreign Policy File, D770473–0269)