China, Malaysia, South Korea, and US manufacturers have said Japan is pursuing a weaker currency, hoping to increase exports, rather than attempting difficult reforms. O'Neill warned in Tokyo that he won't condone such a policy, because "exchange rates cannot improve productivity or fix non-performing loans."
There's also a geopolitical calculation in the move to a harsher stance on Japan. Without a pickup in growth, Japan will be overtaken by China as Asia's premier economy within two decades, analysts said. Government figures are expected to show China's economy grew 7.3 percent last year.
China concerns
"Japan is viewed as a useful friend to the US which looks upon it to keep a check on China," said John Pike, a military analyst for GlobalSecurity.org, a defense research group.
Underscoring the administration's concern on that front, Secretary of State Colin Powell accompanied O'Neill to a meeting in January with Prime Minister Junichiro Koizumi. He told the Japanese leader his country must again become an ``economic engine'' in its region.
The administration-wide wake-up call to Japan marks a U-turn from a year ago. Then, O'Neill spoke of approaching its leaders with "humility."
Top White House economist Lawrence Lindsey also argued that "gaiatsu," or foreign pressure, had proved counter-productive for the Clinton administration and should be replaced "by a policy of mutual cooperation and respect."
In September 2000, at the annual meetings of the World Bank and IMF in Prague, Summers said it was "critical" for Japanese policy makers to "maintain supportive fiscal and monetary policies."
In a meeting with Summers in Prague, Japanese Finance Minister Kiichi Miyazawa promised the government would spend more money to boost the economy.
O'Neill's approach may be seen as different because he isn't as specific as Summers in his policy prescriptions. He also has praised Koizumi's embrace of reform and expressed faith that Japan will return to growth.
"When Summers walked into a room, the Japanese felt they were being browbeaten, while O'Neill has a more gentlemanly atmosphere about him which may lessen his blows," said Ed Lincoln, a senior fellow at the Brookings Institution, and a former economic adviser to the US Embassy in Tokyo.
"But, what O'Neill had to say could easily have been said by Summers."
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