• Kyodo

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Federal Reserve Board Chairman Alan Greenspan on Thursday urged Japan to immediately begin disposing bad loans in the banking sector, a senior Japanese ruling party official said.

Disposal of nonperforming loans is an urgent task facing the Japanese government, Greenspan was quoted by Taku Yamasaki, Liberal Democratic Party secretary general, as saying.

Yamasaki spoke to reporters after he and the secretaries general of the two other parties forming Japan’s ruling coalition — Tetsuzo Fuyushiba from New Komeito and Takeshi Noda from the New Conservative Party — met with the Fed chief.

The trio was in Washington on a three-day visit to brief U.S. leaders on Prime Minister Junichiro Koizumi’s economic, foreign and defense policies.

Greenspan was quoted as saying that Japan’s position as the world’s second-largest economy in terms of gross domestic product means its economic situation will affect not only the United States but the rest of the world.

Bad loan disposal is indispensable for reconstructing the Japanese economy, Greenspan said.

Greenspan also said the monetary easing policies adopted by the Bank of Japan may only produce effects after the banking sector rids itself of bad loans.

Earlier in the day, Glenn Hubbard, chairman of the White House Council of Economic Advisers, met with the three and voiced support for promised structural reforms and the BOJ’s ostensibly free-money policy, Yamasaki said.

“Hubbard placed great expectations on the new economic agenda in the Koizumi Cabinet,” Yamasaki said.

Hubbard was quoted as saying the U.S. administration is interested in Koizumi’s pledge to actively dispose of nonperforming loans in the banking sector and his efforts to relax rules and regulations in various sectors.

He also told the visitors that Washington supports the BOJ’s quantitative monetary easing strategy adopted March 19, maintaining it will offset deflationary effects that may arise from drastic structural reform.

Citing the Fed’s aggressive credit-easing and President George W. Bush’s tax cut plan, Hubbard voiced optimism about the future course of the U.S. economy, according to Yamasaki.

Hubbard was quoted as saying that the U.S. economy is currently growing at an unacceptably moderate pace but that it will likely follow a recovery path from the end of this year to early next year.

Bush’s $1.35 trillion tax cut will probably generate the desired effects in the fourth quarter of this year, Hubbard said.

Yamasaki said he told Hubbard that Tokyo wants a pickup in the U.S. economy to enable Japan to export more and thereby help trigger a recovery in Japan.

The three coalition officials met with Bush’s top economic aide, Lawrence Lindsey, and Treasury Secretary Paul O’Neill on Wednesday.

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