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- WSJ.com Major Business News February 20, 2002 Bush Praises Japan's Koizumi, But Reform Will Be Difficult By PETER LANDERS and JIM VANDEHEI Staff Reporters of THE WALL STREET JOURNAL BUSH IN ASIA What do you think Japan should do to boost its economy?1 Join a discussion. *** Bush, in Korea, Keeps Hard Line on Pyongyang2 02/20/02 Bush Backs Koizumi's Plan to Aid Japan3 02/19/02 Bush Discusses Asian Economy Ahead of Tour of Region4 02/18/02 TOKYO -- U.S. President George W. Bush showered Japanese Prime Minister Junichiro Koizumi with praise, but it remains unclear whether Mr. Koizumi has the political clout to quickly bring about the changes Washington wants. Mr. Bush toned down some of the stern rhetoric U.S. officials had used in the months leading up to his Tokyo visit, which ended Tuesday. He suggested politely that the U.S. economic revival in the 1980s might be a lesson for Japan, but didn't advocate specific policies for Japan or issue dire warnings about what would happen if Tokyo fails to clean up its banking system. "Japan, thanks to my friend, the prime minister, is on the path to reform," Mr. Bush said in a speech to Parliament shortly before departing for South Korea. "Japan has embarked on a new restoration. A restoration of prosperity and economic growth through fundamental reform and the full embrace of competition." The president played the role of economic historian and sage, referring to the grim economic times the U.S. suffered in the late 1970s and early 1980s and its subsequent comeback. "We learned that in times of crisis and stagnation, it is better to move forward boldly with reform and restructuring than to wait, hoping that old practices will somehow work again. Through bold action, we emerged a better and stronger economy -and so will you," he told the Japanese legislators. In some ways, it wasn't a fair comparison. Japan's banking system, saddled with hundreds of billions of dollars in bad loans, is in much worse shape than U.S. savings-and-loan institutions were during the crisis of the 1980s. At the peak of the crisis, nonperforming loans at U.S. banks rose to about 5% of total lending. In Japan, analysts estimate, the comparable figure is as high as 20% or more. What is more, Japanese prime ministers have much less power than U.S. presidents to work their will. Some investors had hoped that a harsh message from Mr. Bush would prod conservative Japanese legislators to work more closely with Mr. Koizumi. After the president's speech took a softer line, markets fell sharply Tuesday. The benchmark Nikkei 225 Stock Average fell 2.4%, while the yen and Japanese bond prices both declined. Bank stocks dropped sharply. Despite some investors' disappointment, Takeshi Kondo, a member of Parliament in the ruling Liberal Democratic Party, said Mr. Bush sent a strong enough message on the need for banking reform. "He went to the limit. He implied it very I strongly. thought he did enough," said Mr. Kondo. "If he had said something beyond what he did, it would have been interpreted as interference." Mr. Kondo, a former executive at trading company Itochu Corp., predicted the prime minister will announce an infusion of public funds into banks by the end of March and credited the president's visit for building up pressure. "The mere fact that he made a visit to Japan was quite beneficial to Mr. Koizumi," Mr. Kondo said. However, many Japanese leaders remain skeptical about the need for a bank bailout. At a meeting of the ruling Liberal Democratic Party's antideflation special committee on Tuesday, legislators focused on getting the central bank to loosen monetary policy as the best fix for Japan's economy. Also, Chairman Hideyuki Aizawa proposed using the same state-owned financial institutions that Mr. Koizumi wants to abolish to funnel more funds to troubled small businesses. "I'm not opposed to reform, but it is hard for me to see how reform will contribute to the antideflation policies we talked about," Mr. Aizawa said at a news conference. Mr. Koizumi also faces growing public skepticism about his ability and determination to carry out reform. "When it comes to specifics, my sense is that there is no difference from previous governments," said Toshie Shimane, 29 years old. Michiro Tsuguchi, a 25-year-old graduate student, agreed and added, "Just because Bush supported Koizumi doesn't mean our feelings change." In some ways the situation resembles the U.S. support for former Russian President Boris Yeltsin in the 1990s. U.S. President Bill Clinton's advisers considered Mr. Yeltsin their best bet for change in Russia, but the Yeltsin administration, especially in its later years, lost support among both the public and the political elite and became bogged down in economic woes. The difference is that Mr. Koizumi still has a chance to demonstrate he merits the U.S. vote of confidence. Said Mr. Kondo, the ruling-party legislator: "What Mr. Koizumi can do is to show results very soon. That's all he can do." Write to Peter Landers at peter.landers@wsj.com5 and Jim VandeHei at jim.vandehei@wsj.com6 URL for this article: http://online.wsj.com/article/0,,SB1014142823999846960.djm,00.html Hyperlinks in this Article: (1) http://discussions.wsj.com/n/mb/message.asp?webtag=wsjvoices&nav=messa ges&msg=1751 (2) http://online.wsj.com/article/0,,SB101411066566905640,00.html (3) (4) (5) (6) http://online.wsj.com/article/0,,SB1013997378440945000,00.html http://online.wsj.com/article/0,,SB101384675241890320,00.html mailto:peter.landers@wsj.com mailto:jim.vandehei@wsj.com Updated February 20, 2002 12:01 a.m. EST Copyright 2002 Dow Jones & Company, Inc. All Rights Reserved Printing, distribution, and use of this material is governed by your Subscription agreement and Copyright laws. For information about subscribing go to http://www.wsj.com

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