Q+A-Key economic ties between U.S. and Japan

(For full coverage of Obama's Asia visit click [ID:nOBAMAASIA])

By Yoko Nishikawa

Nov 10 (Reuters) - U.S. President Barack Obama meets his Japanese counterpart Prime Minister Yukio Hatoyama in Tokyo on Friday, bringing together the leaders of the world's two largest economies.

Ahead of those discussions U.S. Treasury Secretary Timothy Geithner visits Japan, meeting Finance Minister Hirohisa Fujii on Tuesday to discuss currency issues and policies for strong, sustainable and balanced growth. [ID:nT342299]

Fujii will hold a news conference after the dinner meeting with his comments expected sometime after 9:40 p.m. (1240 GMT).

Below are questions and answers on the economic ties between the two nations.

WHAT IS JAPAN'S POLICY ON THE YEN?

Soon after Japan's new government under Hatoyama took power in September, Fujii rattled foreign exchange markets by suggesting he favoured a strong yen. He later said he had never explicitly called for a stronger currency, after markets sent the yen soaring. [ID:nT337529]

But market players are not fully convinced Fujii has abandoned his view a strong yen would boost domestic demand as Tokyo seeks to wean the economy from export dependency.

U.S. Treasury officials have said very little about Tokyo's economic policies and the new government's stance on currencies.

Fujii has said the dollar has been weak despite a U.S. desire for a strong greenback, and told Geithner when they met in September that Tokyo supported Washington's stance a strong dollar was in U.S. interests. [ID:nT299473]

Tokyo has not intervened in the currency market since 2004, and Fujii has said competitive currency devaluation would ruin the world's economy. [ID:nTKB006520]

WILL JAPAN SHIFT AWAY FROM DOLLAR?

Not any time soon. Japan, which has the world's second-biggest foreign reserves after China, has distanced itself from some central banks that stepped up euro and yen purchases because of worries over the dollar's stability. [ID:nN03511622]

Tokyo takes a conservative approach to managing its $1 trillion reserves and avoids any suggestion it would dump U.S. assets as it could shake up markets and precipitate a dollar fall, hurting its own portfolio and upsetting the United States, a key ally.

Fujii said last month there was no change in Japan's policy of managing its reserves mainly with the dollar. [ID:nT285056]

HOW DO THEY SEE ECONOMIC STIMULUS AND IMBALANCES?

U.S. officials think the emphasis now needs to be on ensuring economic stimulus lasts long enough to secure sustainable growth as signs of recovery remain fragile -- a view shared by Tokyo.

Fujii has said Geithner appreciated the focus by Japan's new government on transforming the world's No. 2 economy into one led by domestic demand as it helps rebalance the global economy and supports Washington's efforts to boost savings rates.

ARE THEY STILL IMPORTANT TRADE PARTNERS?

Japan's trade with the United States totalled around $247 billion in 2008 and the two have no major trade dispute now.

Some analysts say Tokyo is getting worried about losing its first-class status given talk of a "G2" arrangement under which Washington and Beijing shape the global economy. China is seen replacing Japan as the world's No.2 economy, possibly next year.

China has already replaced the United States as Japan's biggest trading partner and No.1 export market, although many Japanese shipments to China are for products then exported to the United States.

A backlash from Japanese farmers has forced Hatoyama's Democratic Party to water down a proposal for a free trade agreement (FTA) with the United States. [ID:nT80018]

Washington is interested in the idea but U.S. Ambassador to Japan John Roos has said any FTA with Japan should include agriculture products.

Hatoyama wants to form an East Asian Community, starting with deepening trade and economic ties but seeking an EU-type bloc that eventually leads to a common currency in the region. But Hatoyama has said the idea is a long-term vision and not meant to diminish the dollar's role. [ID:nSP165012]

Washington business leaders called on Monday for Obama to use his trip to Asia to get more involved in regional trade talks. [ID:nN09279939] (Additional reporting by Glenn Somerville; Editing by Jerry Norton)