Senior U.S. Officials are looking to Japanfor help in buttressing the world economy in the event of an
American recession next year, Japanese government sources said.
    During a visit to the U.S. Earlier this month, Economic
Planning Minister Tetsuo Kondo was asked by both U.S. Federal
Reserve chairman Paul Volcker and Council of Economic Advisers
chairman Beryl Sprinkel what Japan could do if the U.S. Enters
recession next year.
    Although Sprinkel indicated that he personally did not
expect a recession next year, Volcker seemed to acknowledge
that an economic downturn was at least a possibility, the
sources said.
    Faced with with a huge budget deficit, the U.S. Has little
room to manoeuvre on fiscal policy to counteract any downturn
that might occur in 1988.
    It is also hamstrung as far as monetary policy is concerned
because U.S. Inflation is already showing some signs of picking
up, one source said.
    But Japan is also limited in what action it could take to
help counteract a U.S. Recession without running the risk of
overstimulating its domestic economy and pushing up inflation,
the sources said.
    Money supply growth is accelerating and interest rates are
at record low levels. In May, M-2 money supply plus
certificates of deposit grew at a year-on-year rate of 10.2
pct, well above nominal GNP growth of four to five pct.
    Some government sources are also worried that the recently
announced 6,000 billion yen emergency economic package could
push up land prices and the construction sector's inflation.
    Public investment spending grew at a year-on-year rate of
about 10 pct in April, but that could accelerate to 20 pct
later this year under the impact of the emergency package, one
source said.
    The 6,000 billion yen package was generally well received
in the U.S., Although U.S. Congressmen and businessmen told
Kondo they wanted the measures implemented quickly, sources
said.
    The Japanese minister explained that the acceleration of
public works spending in the package was taking place
immediately, they said.
    U.S. Congressmen were particularly interested in how much
impact the package would have on reducing the bilateral trade
imbalance, a question which Kondo was unable to answer clearly,
given the many economic uncertainties involved, the sources
said.
    While recognizing that Japan's trade surplus is falling in
terms of volume, some Congressmen expressed concern that it was
not falling fast enough.
     But the sources said no one pressed Kondo for a further
rise of the yen as a solution to correcting the bilateral trade
imbalance.
 REUTER
