Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

154. Memorandum From the Assistant Secretary of the Treasury for International Affairs (Bergsten) to the Under Secretary of the Treasury for Monetary Affairs (Solomon)¹

Washington, August 7, 1978

SUBJECT

• Discussion with Professor Chiaki Nishiyama on August 7, 1978

Professor Nishiyama opened our meeting by presenting a letter from Prime Minister Fukuda to Chairman Miller concerning Nishiyama’s visit.² He indicated that he was conveying the concerns of the Prime Minister and referred to his meeting with Secretary Blumenthal “on Thursday”.³

Nishiyama focused on the increasing Japanese concern over the “speculative appreciation” of the yen, which in turn was hindering the outlook for Japanese economic growth. At this point, the GOJ was expecting growth in JFY 79 to be 1–1½ percentage points less than in JFY 78 and was not sure that it could make the 7 percent target for JFY 78. Nishiyama stressed that the GOJ did not oppose appreciation of the yen; indeed, they viewed it as inevitable as long as inflation rates remain lower in Japan than in the U.S. However, they believe that recent movements in the exchange market had overshot and that the current equilibrium rate is about 200–210 yen to the dollar.

Nishiyama indicated that the GOJ “was screaming at us” and “begging us” to do something to reduce the speculation in the exchange markets”.⁴ He made no specific request, but in response to my question indicated it should be “something like you did for the Germans”.⁵ There need be no public announcement of such U.S. steps; the agreement could be a tacit one with periodic (e.g., semi-annual) review. Nishiyama stressed the political distinction which is felt in Japan concerning the differences between the U.S. policies toward the two countries on this issue, but in response to my further question indicated that they also believed that the U.S.-German agreement had stabilized the DM market.

In return for USG help on this issue, Nishiyama said that Japan would offer the following:

—A commitment to sell dollars to keep the yen from weakening beyond 205:1.

—A reduction in the prime interest rate to 2 or 2½ percent, from the present level of 3%.

—A supplementary budget in September of 4 trillion yen (about $20 billion) instead of the 2½–3 trillion yen now under active consideration.

—Periodic, perhaps monthly, review of developments to see if the agreed targets were being achieved.

Nishiyama indicated that these measures would be aimed at assuring Japanese growth of 7% in JFY 78, compared with the current outlook of 5½ percent, and a rate of 7½ percent in JFY 79. He strongly implied that the lower supplementary budget now under consideration might well fail to achieve the 7 percent target for JFY 78.

In response to my question, Nishiyama foresaw a Japanese current account surplus of $16 billion in JFY 78 dropping to $6 billion in JFY 79 if growth were to reach 7% in JFY 78 and 7½% in JFY 79.

I indicated that these current account numbers were still very high, and wondered whether anything could be done about them in the short run. Nishiyama replied that we should “tell them what to do”. He quickly added that there was active consideration of emergency import measures to a total of about $3 billion. However, his failure to initiate discussion of this issue suggested to me that it was not part of the current GOJ “offer”.

I thanked Nishiyama for conveying these thoughts. He urged me “not to stop there,” but I simply indicated that we would be talking to him again later in the week.

C. Fred Bergsten⁶

1. Source: Carter Library, Anthony Solomon Collection, 1977–1980, Chronological File, Box 4, 8/78. Secret; Nodis. Solomon forwarded this memorandum to Blumenthal as background for an August 9 meeting with Chiaki Nishiyama, a professor of economics at Rikkyo University. In his August 8 cover memorandum to Blumenthal, Solomon noted that Nishiyama had “also spoken to Bill Miller along the same lines.” Advising that they “remain noncommittal” for now, Solomon said that it was unclear whether Nishiyama enjoyed “any official status” or if Matsukawa would espouse “the same line” during a visit to Washington later that week. (Ibid.) Matsukawa visited Washington August 10–11, meeting with Cooper, Solomon, and Blumenthal. (Telegram 197372 to Tokyo, August 4; telegram 208102 to Tokyo, August 16; telegram 210864 to Tokyo, August 18; National Archives, RG 59, Central Foreign Policy File, D780320–0059, D780336–0407, and D780340–0212, respectively)
2. The letter was not found.
3. August 10. Apparently a reference to the August 9 meeting between Nishiyama and Blumenthal referred to in footnote 1 above. No other record of a meeting between Nishiyama and Blumenthal was found.
4. Japanese concerns about dollar depreciation were reinforced the following week. In telegram 14808 from Tokyo, August 17, Mansfield reported on an August 16 discussion of economics with Fukuda, who “closed meeting by asking me to report the concern which he had expressed over the dollar’s decline and I of course said that I would do so. I have no doubt that his concern is real and that he feels strongly on this matter.” (National Archives, RG 59, Central Foreign Policy File, D780335–1005)
5. In telegram 13938 from Tokyo, August 2, the Embassy noted a statement appearing in that day’s Nihon Keizai, a Japanese business newspaper, “that the FRB has never even once activated the swap with Japan, while it has done so in the cases of Germany and Switzerland.” (National Archives, RG 59, Central Foreign Policy File, D780315–1244)
6. Printed from a copy that bears this typed signature.