New round of talks with Japan

The US and Japan yesterday started a new round of trade talks on cars and vehicle components, amid widespread fears that failure to make progress could drive the battered dollar still lower against the yen, adding to the turmoil in international financial markets, writes Rupert Cornwell.

After the tepid reception for the latest economic package from Tokyo aiming to halt the rise in the yen, and the apparent failure of the Treasury Secretary, Robert Rubin, and his Japanese counterpart, Masayoshi Takemura, to agree on new measures to shore up the dollar during their weekend meeting, Washington is determined to extract real concessions on the trade front, with cars at the top of the list. The motor sector accounts for $37bn of the $60bn annual US deficit with Japan.

If the talks fail, the Clinton administration is threatening to impose new tariffs on imports from Japan.

For all the official talk of seeking "a strong dollar", Washington is widely suspected of wanting to drive the yen, which has climbed 20 per cent against the dollar, even higher. This would make Japanese goods more expensive abroad, and probably send the Japanese economy tumbling back into recession. Only then, argue US trade hardliners, will Tokyo move to open its markets.