The Naples Summit: Clinton cool on interest rate rise
Saturday 09 July 1994
Mr Clinton's remarks after meeting Tomiichi Muruyama, the new Socialist Prime Minister of Japan, in effect confirmed an administration policy of 'benign neglect' towards the US currency. He made it clear that it was important 'not to overreact' to the dollar's recent plunge on the foreign exchange markets.
These comments coincided with an admission by both sides that they had made little if any progress on their dispute over America's demand that Japan open up its markets more widely to foreign competition. Despite this, the US called for more open Japanese markets to cut Japan's huge trade surplus.
After the talks, held just before the start of the 20th World Economic Summit, Mr Clinton said it would be a mistake to abandon the Group of Seven's goal of pursuing global growth, which was agreed on at the 1993 Tokyo Summit.
The President then gave another strong indication that he was reluctant to slow the expansion through higher interest rates - the most effective way of stabilising the dollar - so soon after recession had ended. 'I think it's important we not lose sight of the real economy in which the people of the G7 nations and, indeed, the people of the world live.'
Recalling the 1993 G7 agreement on growth, Mr Clinton pointed out that the US economy had recovered, Europe had cut interest rates and both were contributing to the world recovery from recession. But he was less generous about Japan. Tokyo, he said, had promised to stimulate its domestic demand and bring about recovery and Mr Muruyama had reaffirmed Japan's intention to do that.
The President concluded that the steep rise of the yen was a function of the movement of world currency markets and also of the macro-economic realities - in other words Japan's huge trade surplus and the widening US trade deficit. 'The United States does not seek to grow its economy or change its trade balance through a low dollar; we do not want that,' President Clinton said. 'We want the dollar to be properly valued, not undervalued.'
The upheaval in Japanese political life made it difficult to imagine how the hard questions of the US-Japan trade framework talks could have been resolved by now, the President added.
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