Japan is expected to re-emphasize its resolve to achieve structural reforms aimed at revitalizing its economy when finance ministers and central bank governors from the Group of Seven major economic powers gather this week in Washington.
The meeting, scheduled for Friday and Saturday, will take place amid mounting calls for Japan to produce “tangible results.” Nearly a year has passed since the reform-minded administration of Prime Minister Junichiro Koizumi rose to power last April, and any visible accomplishments have been few.
Observers say Japan may have a difficult time winning the confidence of its G7 partners for its structural reform efforts.
“Japan may find itself on the ropes in Washington,” said Masaru Takagi, an economics professor at Meiji University. “With the U.S. getting back to a growth path and Europe bottoming out, the upcoming G7 may highlight Japan’s delayed recovery.”
At the gathering, Finance Minister Masajuro Shiokawa and Bank of Japan Gov. Masaru Hayami will likely be called upon to explain developments in the banking sector’s disposal of nonperforming loans.
They will likely fall back on the recent results of the Financial Services Agency’s special bank inspections, which focused on the “soundness” of the Japanese banking sector.
But Takagi said the FSA’s probes, which downgraded 71 of the major banks’ 149 large corporate borrowers, uncovered only a portion of the bad-loan total. He said the number of companies inspected was too small to get a complete picture of the situation.
“Even if the inspection results precisely reflect the current bad-loan situation, banks have yet to actually write off such loans, which requires building up more loan-loss reserves,” he said.
Shiokawa on Tuesday held a news conference at which he discussed the upcoming meeting and Japan’s economic problems.
“Japan is not going to be mired in the dust of the post-bubble economy forever,” Shiokawa said.
He also said he plans to tell the G7 that Japan’s economy is showing signs of bottoming out.
That also could be a hard sell, considering that U.S. rating agency Standard & Poor’s on Monday downgraded Japan’s long-term local and foreign currency ratings to AA minus from AA and said the outlook for Japan remains negative, due to delayed structural reform.
Said Shiokawa: “We cannot argue with a one-sided view, but we cannot ignore it, so we will reflect on our policies.”
Another topic Shiokawa and Hayami are likely to focus on is Japan’s stubborn deflation. As price falls continue, international critics have called on the government to take concrete steps to counter their effects.
As for the global economy, amid increasing signs that it is recovering, the keynote speech is expected to be brighter than when the G7 ministers met in Ottawa in February, a government official said.
The agenda will likely include policy coordination among member states to achieve sustained global growth, and continuing efforts to zero in on the sources of terrorist funds, the official said.
The G7 groups Japan, the U.S., Canada, Britain, France, Germany and Italy. Russia will be present as an observer.
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