Japan today formally shelved the pledge it made last summer to spur its economy to a 7 percent growth rate as a move to trim its trade surplus, contending that pushing the economy that hard would risk new inflation.
The decision was announced by newly elected Prime Minister Masayoshi Ohira in his first press conference since taking office. Ohira argued that "setting a goal... and driving madly toward it is not realistic."
Ohira's announcement marked a setback for the Carter administration's efforts. It was largely at American insistence that Japan promised earlier this year to aim for a 7 per cent growth target to help spur more imports.
U.S. officials, apparently surprised by the prime minister's statement, nevertheless took a wait-and-see attitude. One insider noted that Japan's "current account" surplus -- trade and investments -- has begun to decline.
However, it still was not clear how Ohira planned to allow the Japanese economy to slow. The prime minister declined to announce any new target, but asserted 7 per cent would be "difficult."
The new Liberal Democratic Party government is just now beginning to plan its economic policies for the January budget message. Ohira made clear he would not ask for additional economic stimulus measures.
Ohira's position on the 7 per cent target had been known for some time. The 68-year-old former finance minister had campaigned on a warning that adhering to the pledge would be inflationary.
What surprised some observers was the speed with which he abandoned the 7 per cent goal. The pledge was made initially by Ohira's predecessor, Takeo Fukuda, while Ohira was a top policymaker in the Fukuda government.
American officials had acknowledged privately for weeks that Japan probably would not pare its current account surplus as much as Fukuda had pledged. But they were reluctant to compalin as long as Japan still was "trying."
Ohira said he did not think Japan would lose face among other industrial nations if it does not meet the 7 per cent growth target it agreed to at the Bonn economic summit last summer.
He said the government's failure to meet the 7 per cent target stemmed primarily from a falloff in exports resulting from the recent sharp appreciation of the Japanese yen -- and not from any shortcomings in fiscal policy.
When the value of the yen rises -- particularly in relation to the dollar -- it makes Japan's exports more costly, and therefore less attractive in relation to those of other countries. At the same time, imports cost more.
Ohira's announcement came as, separately, envoys from the seven major nations that participated in the Bonn economic summit last summer made plans to meet in the West German capital on Monday to take stock of the parley's results.
The session, which was planned several meetings ago, is part of a followup procedure that has become routine after every summit. Economic summit conferences have become an international institution since the first one, in 1974.
Results of the Bonn summit have been judged to be mixed. Although Japan obviously is about to fall short of its target, West Germany has spurred its economy sharply. In the U.S., inflation is worse than expected.