New Liberal Democratic Party President Junichiro Koizumi, set to become prime minister today, will see his resolve toward fiscal and economic structural reforms tested this weekend in Washington by the world’s major economic powers.
The leadership change in Tokyo will not affect the policy task of the Group of Seven finance ministers and central bank governors when they meet Saturday in the U.S. capital to discuss the global economy.
Koizumi, who was elected LDP president Tuesday, is expected to succeed Yoshiro Mori today as prime minister.
During the G7 meeting, Bank of Japan Gov. Masaru Hayami and Koizumi’s choice for finance minister are expected to convey Japan’s intention to strengthen its financial sector by accelerating banks’ final disposal of problem loans and maintaining monetary easing steps to combat deflation, a senior government official said. Following the previous meeting in Palermo, Sicily, in February, Japan’s G7 partners are likely to continue urging Tokyo to revitalize its economy and take the lead in dealing with falling global economic growth caused by the U.S. economic slowdown, the official said.
The G7 consists of Japan, Germany, France, Britain, Canada, Italy and the U.S.
The Japanese delegates are also expected to reaffirm their intention to carry out the emergency economic package announced April 6. The package calls for speeding up banks’ bad-loan disposal and revitalizing stock and land transactions.
At the meeting, Horst Koehler, International Monetary Fund managing director, is expected to report its downgraded economic growth projections for major economies. Japan’s growth rate in gross domestic product in 2001 will likely be lowered from the 1.8 percent projected in September to less than 1 percent.
U.S. GDP growth, estimated at 3.2 percent in September, will probably be cut by half.
The gathering also coincides with a surprise move last week by the U.S. Federal Reserve to slash short-term interest rates by half a point to 4.5 percent. The rate cut was aimed at boosting sluggish business investment and stabilizing the global economy.
Observers say the U.S. may urge Japan and Europe to follow suit in a bid to formulate a global regime of monetary easing to spur growth.
If the G7 pursues this option, however, the teetering economy of Japan, the world’s second-largest, would be a matter of serious concern, given the intensifying U.S. slowdown, according to the observers.
In fact, many of Koizumi’s economic policies have yet to be formulated, although his campaign slogan was that “Japan’s economic recovery will not be achieved without structural reforms.”
Since Koizumi has not clarified whether he will take steps to mitigate the negative effects of structural reform, which include increased unemployment and deflation, the G7 may urge Tokyo to place more emphasis on economic policies that promote growth, observers say.
Throughout his LDP presidential race, Koizumi stressed that “Japan must accept a year or two of stagnation or even economic contraction as the price for needed reforms.”
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