A special session of the Japanese Diet that would set in motion additional expansionary measures to fulfill Japan's pledges at the Bonn economic summit now appears likely.
This would represent a further effort to curb the extraordinary Japanese trade surplus by focusing Japanese activity on domestic rather than export outlets.
In an interview here over the weekend, Ministry of Finance special adviser Michiya Matsukawa - while not flatly predicting a special session - said that Prime Minister Takeo Fukuda has arranged to meet with his Cabinet in the first week of September to consider the need for such a session.
It would discuss what new stimulus measures are needed to make good on Fukuda's promise to Bonn that Japan would achieve a 7 percent real growth rate in the year ending March 31, 1978.
Carter administration officials have privately been predicting that there will be such a special session, and that a new expansionary program comparable to the stimulus actions recently announced in West Germany would be put forward by Fukuda.
Matsukawa, who had been vice minister of finance until recently, said that by early September, the results of Japan's second quarter would be available. Most experts believe that the Japanese growth rate is running at a rate of only about 5 per cent and will need a push amounting to about 1 per cent of GNP.
The Japanese official was in Washington for post-summit visits with Treasury Secretary W. Michael Blumenthal, Federal Reserve Chairman G. William Miller, and Ambassador Henry Owen, Carter's agent for the economic summit.
Although recent estimates by the Organization for Economic Cooperation and Development (OECD) in Paris are that the Japanese current account surplus will hit a record $17.5 billion this year, Matsukawa said that he believes that the peak of the trend was hit in June and that the current account surplus will now begin to show a definite decline.
In June, the current account surplus was a record $2.37 billion. "We've hit a peak in the trade surplus, even measured in dollar terms," Matsukawa said. In actual volume, Matsukawa said that for some months, exports have begun to shrink and imports have been rising.
He did not offer an estimate on what the current account surplus might be next year. But the OECD has predicted that the sharp rise in the value of the yen, coupled with Japanese efforts to curb some exports voluntarily, would cut the rate of the current account surplus to $13 billion early next year.
Japanese international economic relationships in having serious domestic political ramifications. "It is not only a question of the right level of economic growth and of bringing our trade surplus into equilibrium," Matsukawa said, "but how additional expansionary measures can be financed."
He pointed out that for three years in a row, Japanese public sector borrowings have been very high, currently running close to a ceiling of 10 percent of groas national product.
"In the present economic and political circumstances," he said, "it is difficult to raise taxes to meet the costs of a higher budget. Therefore, the only way to finance additional measures may be through more borrowing."
The worry in Japan, of course, is that heftier borrowing, above a 10 percent limit, might prove inflationary and be politically damaging to Fukuda and the ruling Liberal Democratic Party (LDP). When it was pointed out that, despite heavy borrowing so far, Japan had maintained a very low inflation rate, Matsukawa responded:
"Yes, but debt is accumulating, and we've already found that the smooth floatation of bonds has become harder."
Not citing U.S. officials, Matsukawa also argued that those who pressure Japan for more rapid growth sometimes lose sight of the fact that the enormous appreciation of the yen - 28.2 percent from the beginning of 1977 to mid-1978, and even more since - "is sure to bring equilibrium" in the long run.
He agreed that faster domestic growth, as urged by American officials and assented to by Fukuda, could not be ignored, but said "there should be some sort of combination. Lately, the tendency has been to forget the role of currency appreciation."
Matsukawa, who in his current assignment is the chief adviser not only to the finance minister but also to Fukuda on international economic matters, said he personally feels that cooperation between his country and the United States is closer than ever before.
But he said that the Japanese public still feels that it is being pressured unduly by the United States, especially since American companies have not put forward enough effort to make their exports to Japan attractive.
The unsettled issues - such as agricultural exports into Japan - are highly visible, "and the mass media in both countries make much of it," Matsukawa said. High level meetings between Japanese and U.S. officials continue on these issues on a regular basis.