Q+A-Key economic issues between U.S. and Japan
(For full coverage of Obama's Asia visit click [ID:nOBAMAASIA])
Nov 13 (Reuters) - U.S. President Barack Obama meets Japanese Prime Minister Yukio Hatoyama in Tokyo on Friday for a summit between the leaders of the world's two largest economies.
Below are questions and answers on economic policy issues affecting the two countries.
WHAT IS JAPAN'S POLICY ON THE YEN?
Soon after Japan's new government under Hatoyama took office in September, Finance Minister Hirohisa 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 Secretary Timothy Geithner said in Tokyo this week that he believed strongly in the need to maintain a strong dollar and that Washington was determined to get its budget deficit down. [ID:nT335432]
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.
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.
Geithner said this week he was encouraged by Tokyo's commitment to shift its policy towards growth that comes from more spending at home rather than from selling abroad, a policy that the Obama administration is encouraging throughout Asia.
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 he has said the idea is a long-term vision and not meant to diminish the dollar's role. [ID:nSP165012] (Editing by Sugita Katyal)
