JAPAN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80M01389R000400020030-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 7
• Document Creation Date: December 19, 2016
• Document Release Date: July 7, 2005
• Sequence Number: 30
• Publication Date: March 16, 1979
• Content Type: MEMO

25X1
Approved For Release 2005/07/12: CIA-RDP80M01389Rq
CONFIDENTIAL.
A. The Japanese have done about as much as they can to
-stimulate economic growth in general
-yen appreciation
B. The Japanese must now emphasize long-term changes involving
-Opening their import markets
-Shifting their economy toward domestic
C. If you have doubts about this conclusion I'm prepared to discuss
recent economic trends and the outlook for the rest of the year.
D. If you're comfortable with the conclusion I'm prepared to
-Briefly review how the Japanese see things and how the
Japanese government.can make changes
-Offer some general thoughts on how best to approach the
Japanese
25X1
25Xf
A. Two major actions have taken place.
1. Tokyo has stimulated economic growth, mainly by fiscal means.
-Increased real government spending 20% in the fiscal year
just ended and targeted another 9% rise in the new year.
(Deficit Chart) -Its budget deficit is huge, equivalent to a US deficit of
over $100 billion.
(Yen Appreciation) 2. The yen has appreciated by about 50% since 1976.
B. The impact of these has been
(Export Trend) 1. Export growth has fallen and probably stabilized by most measures.
-Not only because of yen appreciation
-Also because government guided key industries, like autos,
to limit exports.
(Import Trends) 2. Imports have increased especially in the last half of 1978
because of
CONFIDENTIAL
Approved For Release 2005/07/12 : CIA-RDP80M01389R000400020030-0
 &QNFIDENTIAL
Approved For Release 2 5/07/12 : CIA-RDP80MO1389R000400020030-0
-The expanding economy and yen appreciation just discussed
aided by
-One-time emergency imports there accounted for 10% of the
1978 increase.
C.
Prospects are for
1.
Domestic growth of 6.9% in FY 79.
(Current Account
2.
Japan's global current account surplus to fall to $9 billion
Surplus)
this year
-given oil price increases already announced.
-but higher oil prices such as Venezuela seeks could cut
this nearly in half
D. But the stimulation Japan has used has inherent limits
(Real GNP Growth 1. Slowing down exports offset much of the effect of increased
Chart) domestic activity
2. Further Japan must export enough, mostly manufactures to cover
its large food, fuel & raw material imports
E. In sum there's little paydirt left in these measures. Further
efforts must rely more on shifting growth away from exports and on
structual changes to increase imports, especially of manufactured
goods.
F. Shifting growth more toward meeting domestic consumer demand
1. Depends on a growing, but still ill-defined, consensus to devote
more resources to improving housing, social services, etc.
2. Will involve major economic changes, so Finance Ministry &
other conservatives will be cautious because
-Fear losing control in a new situation
-Desire for a trade cushion to cover possible oil and raw
material price increases.
3. Thus will take time
-The consumer's voice is not a very effective pressure on
the government to act.
-But foreign pressure in the same direction will surely help.
G. The second way to improve the trade balance is in expanding imports,
especially of manufactured goods.
(Manufactures 1. Such imports share of the Japanese market is dramatically less
as % of Imports) than that of other developed countries. Indeed the total of
such imports is comparable to Sweden or Switzerland whose
economies are only one-tenth Japan's.
Approved For Release 20 01/LIEN:Tt-RDP80M01389R000400020030-0
 CONFIDENTIAL
Approved For Release 2005/07/12 : CIA-RDP80MO1389R000400020030-0
2. In part, this is due to inadequate efforts of foreign, notably
US, firms to enter and exploit the Japanese market.
3. But, Japanese policy, institutions and practices still do
impose serious obstacles to expanding imports into Japanese
markets.
a. Administrative barriers impede imports. Among them are:
-Testing practices and standards related to design, safety,
environmental and other requirements are slow and expensive
for foreign products.
-These make foreigners see sales to Japan as "too hard."
b. Potential foreign sellers face institutional barriers rooted
in the structure of the Japanese economy. For example
-13 large conglomerates play a major role.
-They rarely buy outside their own group.
-They are major factors in wholesale distribution.
-They control such key competitive factors as department
store display space.
-This makes market entry very hard.
?t.
c. Government policy creates other obstacles.
(1) The government believes in oligopolies and fosters
them. For example, it pushed the merger of six computer
firms into two by underwriting R&D costs in order to
compete with IBM.
(2) Japan also vigorously protects some segments of its
economy, notably agriculture.
(3) There are 113 public monopolies, e.g. telephone, railway, C
tobacco, that pursue "buy Japanese" policies. The
telecommunications market alone accounts for $2 billion t.:
in purchases each year; railways, $700 million.
4. So clearly there are ways for Japan to open up to foreign
imports. They include:
-Bidding on public monopoly procurement
-Liberalizing rules on direct investment
-Simplify or eliminate many testing and similar practices
5. It,can also promote consumer spending by reducing high
consumer savings rate by:
a. Increasing social security benefits to reduce the need for
retirement savings
(Social Security Chart) -This could eventually free up $5 billion per year if
social security benefits reached the US level
Approved For Release 206 @K/L NTc RDP80M01389R000400020030-0
 Approved For Release 2 7IlEZTtMA-RDP80MO1389R000400020030-0
b. Making mortgage money easier to get.
-For example lowering minimum down payment requirements
from 40 to 20% could free up $6 billion annually.
-US firms could help develop this market if they were 25X1
allowed to offer certificates of deposit in Japan.
c. Encourage consumer credit
-Increasing credit to US levels could add .2% to growth
Japan's willingness to open its markets and in the longer run reshape its
national economy from a pattern of export-led growth to one based on growth
through expanding domestic demand atreKos in part o-~ changes in the Japanese
view of the world. The Japanese perception of their international position--
and responsibilities--has, however, evolved much more slowly than their
economic clout.
A. Despite their economic success, the Japanese still feel a marked
sense of economic insecurity and vulnerability.
1. The lack of natural resources, dependence on external energy
supplies and the importance of trade to the economy are all
important factors in the Japanese world view.
(Food, fuel & raw
materials as share
of imports)
(Food, fuel & raw
2. In particular Tokyo has tried to achieve current account
surpluses to provide a foreign exchange cushion to buy food,
fuel, and raw materials.
material imports as
share of export earnings)
-Japan spends 70% of its foreign exchange earnings to buy
these necessities.
-Because raw material prices are volatile, Japanese
policymakers have always targeted an export surplus to
provide a cushion against possible price increases.
B. The Japanese also continue to behave in ways that point to an
"insular" outlook on the world.
Approved For Release 206ghf7T/9iNTGI RDP80M01389R000400020030-0
 CONFIDENTIAL
Approved For Release 2005/07/12 : CIA-RDP80MO1389R000400020030-0
1. Notwithstanding their position in the front rank of the
developed economies, the Japanese remain keenly aware that they
are the only Asian member of the industrialized club.
2. At the same time, Japan's basically homogeneous social make-up,
combined with its historic isolation from the Asian mainland, have
prompted the Japanese to feel distinct from and superior to their
Asian neighbors.
3. As such, the Japanese have tended to follow the US lead on
issues affecting the industrial democracies and avoid unilateral
initiatives toward the developing world where their sense of
responsibility remains limited.
C. Even so, Japanese policymakers and the public at large have gradually
come to accept the need to take more responsibility in managing the
world economy.
1. The Japanese now recognize that, unlike the 1950s and 1960s when
Japan depended on the US to protect and foster the world free
trading system, US actions alone can no longer underwrite the kind
of international economy necessary to sustain Japanese interests.
2. The Japanese likewise see that the terms of their economic
relationship with the US have changed and that Tokyo must be
responsive to US pressures if it hopes to ameliorate bilateral
strains.
3. Finally, the Japanese are aware that the size of their own
economy and its impact on the world trading system have
eliminated their ability to retain special dispensations in
seeking to blunt policy initiatives aimed at opening Japan's
markets and altering the historic Japanese pattern of export-led
economic growth.
IV. Until the early 1970s, Japan's economic policy was underpinned by a
national consensus favoring export-led economic growth as the national
foremost priority. That consensus has been clearest in the close
relationship between the government and the business community.
A. Although by no means free of frictions, collaboration between
business and government was directly aided by a common set of goals
governing industrial development and the expansion of Japanese
markets abroad.
1. MITI's hand in identifying key areas for economic development,
fostering business cooperation, and pruning less competitive
industries has been an important element in Japan's success.
2. Growth in Japan's foreign trade sector was also aided by a common
business-government effort to identify new markets and pursue
investment, tax and export promotion policies to rapidly develop
Japan's market shares.
CONFIDENTIAL
Approved For Release 2005/07/12 : CIA-RDP80MO1389R000400020030-0
 Approved For Release 2~Q5~9I7,(~ ICIp-RDP80M01389R000400020030-0
3. Politically, popular satisfaction with rapidly accelerating
economic growth, and the accompanying real increases in the
public's standard of living, buttressed support for the
government and its programs.
P. The shock of the 1973 oil crisis ended Japan's domestic consensus
on high growth as the nation's foremost priority, but several
factors have complicated Japanese efforts to arrive at a new
consensus on national economic strategy.
1. Even before the energy crisis the government's ability to
directly influence the industrial sector had been gradually
eroded by the rise of new corporate giants--Honda, Sony,
Matsushita, for example--
-Unlike the old-line conglomerates, these are less beholden
and less responsive to direct government guidance.
-The result has been greater friction and competition within
Japan's economic policy establishment.
2. Within the government, decisionmaking has also become more complex ,_
because more ministries now have a hand in designing and
implementing economic and trade policy. For example,
-The system of flexible exchange rates means greater say for
the Finance Ministry in day-to-day trade policy.
-Pressures to liberalize the farm sector have boosted the
role of the Agriculture Ministry.
3. In the political arena, meanwhile, the declining rate of growth
in real income has energized public pressure on government
policy. Competing priorities and new demands on government
resources have also become more intense because of popular
pressures for actions to remedy long neglected areas like
housing, welfare and public works.
Approved For Release 2005/07/12 : CIA-RDP80MO1389R000400020030-0
 25X1 Approved For Release 2005/07/12 : CIA-RDP80MO1389R000400020030-0
Next 5 Page(s) In Document Exempt
Approved For Release 2005/07/12 : CIA-RDP80MO1389R000400020030-0