US President George W. Bush will likely urge Japan's premier to pursue structural reforms during a visit next week while downplaying the role of exports in a recovery, according to a top White House economist said.
"There's no way Japan can export itself out of its problem without fixing the non-performing assets and changing the monetary policy," Glenn Hubbard, chairman of the Council of Economic Advisers, told Japanese reporters in Washington Tuesday.
The comments come before Bush meets Prime Minister Junichiro Koizumi during a three-day trip to Tokyo, his first visit as US President, starting Sunday.
Bush would probably not use a forceful tone during the talks, Hubbard said.
"I think he will give quiet advice from a friend. I don't expect the president to use harsh words -- that's not his style, that's not the way he does business with Japan," Hubbard said.
The Japanese economy is wallowing in recession for the third time in a decade, pressured by weak demand and persistent deflation, which the government is desperate to fight.
In December consumer prices -- a key indicator of deflation or inflation -- fell for the 28th straight month, down 1.2 percent from a year earlier. Meanwhile, the government confirmed yesterday Japan's revised GDP product shrank 0.5 percent between July and September from the previous quarter. Tokyo expects the economy to contract 1.0 percent in the year to March, post zero growth the following year and eke 1 percent expansion in fiscal 2003.
A 10 percent drop in the value of the yen against the dollar since November due to growing pessimism over Japan's economy, has provided a single bright spot by making exports more cost-competitive abroad and boosting overseas earnings in yen terms, analysts said.
But Hubbard warned it would be a "mistake" for Japan to try to revive its economy through advocating a weaker currency without promoting Koizumi's drastic reform plan.
"The big problem is what I would call non-performing assets -- the capital and the savings of the Japanese people haven't been put to the highest value uses," Hubbard said.
He also expressed disappointment with the pace of reforms by the Koizumi administration to deal with a mountain of bad loans, burdening Japanese banks.
"I think the issue is implementation and the speed with which it is resolved. I think the Koizumi administration has to make its own decisions about that timetable," he said.
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