As Japan prepares to pay host to US President George W. Bush, a flurry of last minute preparations are underway. Cleaning the red carpet, tightening security and, oh yeah, fixing that deflation problem.
"Japan has had deflation in three of the last four years and so presumably Koizumi feels that now is the time to have a look at a plan," quips Paul Donovan, London-based head of global economics for UBS Warburg.
Bush's visit, which starts tomorrow, has given Prime Minister Junichiro Koizumi a sense of urgency about deflation that until now has been sorely lacking. It could've been dismissed as a coincidence, if not for Tokyo's well-established pattern where contact with the US is concerned.
Without fail, Tokyo goes into damage control mode in the days ahead of summits with US officials and G7 meetings.
Take the recent G7 confab in Ottawa; the days leading up to the event were filled with meetings aimed at fixing Japan's bad-loan problem -- or at least to give the appearance something was being done.
The last five years offer myriad examples of pre-US-meeting window dressing, all aimed at pre-empting criticism from Washington.
Granted, Tokyo has experienced less of that under the Bush Administration than during Bill Clinton's tenure. But Bush staffers from Treasury Secretary Paul O'Neill to Trade Representative Robert Zoellick and White House economist Glenn Hubbard are clearly losing patience with Japan's weak economy.
Yet the world is getting wise to Tokyo's tactics. Japanese officials are not unlike the 19-year old whose parents have been away for a month. He's been living it up, partying with friends and trashing the house. Then, suddenly, he realizes mom and dad will be home soon and it's time to hide the mess.
Looked at another way, Japan is like a lazy university student.
He's had all semester to finish his assignments. The night before they're due, he crams to turn in something good enough to eke out a passing grade. Members of Clinton's Treasury Department used to joke that at G7 meetings, Japanese officials often seemed like a hung-over student trying to explain away their sub-standard performance.
The flurry of activity before Bush's visit fits the pattern.
Japan, after all, should've been tackling deflation a few years ago.
The government points fingers at the Bank of Japan, which has lowered interest rates to zero percent and gone even further to print yen.
The BOJ points its finger back at the government, saying monetary policy isn't working because the government hasn't tackled Japan's bad loan problems.
As this bitching match stretches on without resolution, so does deflation. In the past week, Koizumi and his team have rolled up their sleeves to stop prices from falling. At least that's the image they're projecting. "It's necessary we implement effective anti-deflation measures swiftly given the current financial market conditions as well as the decline in bank lending," Koizumi said.
Nice to see Koizumi gets it, and even nicer to see he's looking for tangible solutions. Yet all Koizumi & Co are really doing is talking; they're not doing anything about it. That explains why Moody's Investors Service is considering cutting Japan's "Aa3" credit rating two notches. Koizumi talks a lot about reform, but hasn't changed a thing.
A touchy question, of course, is why Bush's visit is sparking such anti-deflation fervor. The reason is US approval of Koizumi's reform drive is very important to the embattled prime minister. His approval ratings are sinking with the economy.
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