For once, Japan may not be singled out for lagging behind when finance ministers and central bank chiefs of the Group of Seven economic powers get together Friday to discuss global trends.

The G7 meeting, in Washington, will be held as share prices around the world remain on a downward path and as a recovery in Europe, particularly in Germany, is weakening.

The downward swings mark a stark contrast to the 1990s when Japan’s economy was stumbling along while most of the rest of the developed world took a ride on an unprecedented bull market.

Said Takatoshi Kato, former vice minister for international affairs at the Finance Ministry: “Downside risks involving the global economy have emerged in the past several months. Sources of concern can be seen in other places (in the world).”

Among these risks, ranging from the global decline in stock prices to escalating oil prices, Kato said the bleak U.S. economic outlook would be the largest issue worrying the G7 members — Britain, Canada, France, Germany, Japan, Italy and the United States.

Japan’s struggling economy will thus probably not top the agenda at the meeting. However, pundits say the country’s foot-dragging on trying to curb deflation and clearing nonperforming loans remains a source of G7 concern.

Earlier this month, Prime Minister Junichiro Koizumi promised U.S. President George W. Bush that Japan would accelerate the disposal of bad loans held by the country’s financial sector.

According to the Financial Services Agency, the combined amount of nonperforming loans held by the sector grew to 43.21 trillion yen as of March 31 from 33.63 trillion yen the previous year. But some independent economists and financial analysts say the actual figure could be much higher.

In fact, the degree of the problem appears to be pitting government institutions against one another. Last week, for example, the Bank of Japan announced a surprise decision to directly purchase stocks held by the country’s major banks in an attempt to prop up share prices.

BOJ officials said they are embarking on the high-risk path in an attempt to shock the government into action.

The BOJ move, unprecedented in a developed country, has already drawn criticism from economists and central bankers, including German Bundesbank President Ernst Welteke, because it threatens the relative independence of the central bank.

“The BOJ’s plan to buy stocks held by banks has yet to be fully evaluated,” said Kato, who currently serves as an adviser to the president at the Bank of Tokyo-Mitsubishi, Ltd. “It will be interesting to see what kind of opinions come out when experts gather in Washington.”

Japan’s festering deflation is another point of contention, because an economic recovery can hardly be achieved if the problem is not corrected, since deflation generates new bad loans.

Finance Minister Masajuro Shiokawa and BOJ Gov. Masaru Hayami are expected to express their resolve and promise a prescription to cure Japan’s malaise, but the two will be unable to provide specifics.

Tokyo intends to set a strategy next month to accelerate the disposal of nonperforming loans and carry out tax reforms later this year, but the details have yet to be worked out due to disagreement among policymakers.

Yet, some experts say the growing pessimism over the global economy in the past several months, including concerns over a U.S. downturn, may draw the spotlight away from Japan.

“At issue will be how to revive the global economy if the locomotives of growth have stalled,” said Yasunari Ueno, chief market economist at Mizuho Securities. “The economies of the U.S. and Europe have started wobbling, and the world economy appears to be suffering.”

On the other hand, Kato claimed, Japan’s economy has started to show signs of improvement. The latest gross domestic product figures showed Japan growing 0.6 percent in the April-June quarter.

There is another matter that could cast a pall over the global economy, but the threatened U.S.-led attack on Iraq will probably not be a topic at the G7 meeting, Ueno said.

The administration of U.S. President George W. Bush attaches great importance on security and thus would probably think it unwise to risk a rift with its allies at the G7 meeting, in view of the Iraq showdown, Ueno said.

Exchange rates are also not expected to be a major topic because the current yen-dollar rate is hovering within a tolerable range for monetary authorities, Kato said.

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