• Kyodo

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The United States is fairly optimistic about the global economic impact of a possible war with Iraq, but it is concerned about Japan’s sluggish economy, a U.S. administration official said.

“Once there is some clear resolution of the situation (with Iraq), whatever form that takes, that should provide greater certainty and we would expect that to have a positive economic impact globally,” the official said Friday.

“But the broader question is obviously the Japanese economy does remain weak and the future uncertain, and we remain concerned about that,” the official said, speaking on condition of anonymity.

The U.S. wants the Japanese economy to begin growing again, he said, and to support global economic growth.

The U.S. administration will continue to support Japan’s efforts to fight deflation, clean up bad loans in the banking sector and promote corporate restructuring, according to the official.

He added that the U.S. hopes Japan’s planned Industrial Revitalization Corp. will help promote the disposal of bad loans and encourage corporate restructuring.

The new idea “could be an important part of the solution to the problem, but we are waiting to see what the details of that scheme” are, he said.

The public entity has been proposed as a way to rebuild companies that are heavily indebted but considered viable.

The official also said he believes Japan should further ease its monetary grip, if necessary, to put an end to deflation.

“We want the Japanese authorities to continue to do what they can to fight deflation and if that requires additional action by the Bank of Japan, then that would be supportive of that objective,” said the official.

He also expressed hope that the Japanese government will support the central bank’s fight against deflation through fiscal policy measures, such as tax cuts.

“If fiscal policy is able to support that objective of fighting deflation, then we would think that’s an appropriate mechanism tool to use. “In principle, tax cuts can be an effective measure to stimulate economic activity and to provide the basis for long-term economic growth,” the official said.

While welcoming Prime Minister Junichiro Koizumi’s economic reform initiative, the official emphasized the need for Japan to accelerate reform steps to put the Japanese economy on a firm recovery track.

“The economy is not yet growing at its potential rate and so the result is still not satisfying fully to, first of all, you the Japanese people and your government, and therefore to us as well.

“So we think there’s still work to be done and that it’s important to find the right policies and to implement those thoroughly,” he said.

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