Japan agrees to open markets to US goods at G7

As the summit of world leaders opened in Denver yesterday, President Bill Clinton and Japan's Prime Minister, Ryutaro Hashimoto, arranged a wide-ranging initiative to ensure that deregulation of the Japanese economy opens up key markets to American goods.

The initiative, covering financial services, pharmaceuticals, telecoms and housing, is designed to defuse a row over Japan's growing surplus in trade with the US. The emerging trade gap had threatened to be one of the few real disagreements at this weekend's annual economic summit.

Announcing the deal, the US trade representative, Charlene Barshefsky said it was designed "specifically for the purpose of increasing US and foreign market access into Japan. The amount of trade affected would be very substantial".

US officials described the meeting between President Clinton and Mr Hashimoto as "candid and direct". The President said that previous persistent trade imbalances had been a source of real damage to the two countries' relationship.

Officials also said that for the first time the Japanese had acknowledged that structural reform of their economy could help play a part in resolving trade tensions.

However, there were signs that not all of the tension had been removed by the talks, which lasted into the small hours. Mr Hashimoto bridled at suggestions that the US would be overseeing Japan's reforms.

"We have no intention of being supervised. Deregulation is a task we have to embark on for ourselves," he said. Reform would boost the economy and make it more competitive.

The Japanese government, in fact, have little other option. Interest rates are at an all-time low and cannot fall further. The government must cut its budget deficit, and any boost from trade would be limited by tensions at the US.

America's role in the new deal would be advisory, Mr Hashimoto said. He portrayed the agreement as a continuation of a process of negotiation that began four years ago, rather than as a new departure, and said there was no specific time frame.

Ms Barshefsky, on the other hand, said the USA would expect to see material results within six to eight months.

Recent figures have suggested that the ultra-sensitive trade gap is widening again. It nearly doubled to $4.8bn in April, the highest for six months.

This partly reflects big movements in the yen-dollar exchange rate during the past three years. The dollar reached a post-war low of just above 80 in April 1995, but had climbed to 127 by February this year. It has since fallen sharply once again.

The finance ministers meeting in Denver this weekend are anxious to tame these currency fluctuations and will pledge to avoid big trade imbalances.

Ms Barshefsky and Sir Leon Brittan, the EU's Commissioner for External Affairs, separately signed a series of US-EU trade agreements covering $50bn worth of trade yesterday. These "mutual recognition agreements" will eliminate the need for products to undergo duplicate tests and certification on both sides of the Atlantic.