BBC U.K.
Bush gaffe hits yen



Bush praises Japan's determination to carry out economic reforms

A remark by US President George W Bush about "devaluation" in Japan has caused confusion in the currency markets.
The yen fell as some traders interpreted the comment as meaning the US favoured a devaluation of the Japanese currency.

Bush aides hastened to clear up the confusion, saying the president - in Japan as part of an Asian tour - had "misspoken".

They said his comment had meant to be about Japan's problem of "deflation" - steadily falling prices, which depress spending and investment - not devaluation.

'Upfront'

The need for economic reforms and the weakness of the Japanese yen dominated talks with Japan's Prime Minister Junichiro Koizumi in Tokyo.

Speaking at a joint news conference, Mr Bush said the Japanese prime minister had been upfront about his country's economic problems.

Mr Koizumi had given "equal emphasis" to the need for Japan to "clean up its billions of dollars in non-performing loans... and make regulatory reforms", Mr Bush said.

Mr Bush's addition of a third item to this list - the need for "devaluation" of the yen - immediately triggered a drop in the Japanese currency.

'He looked me in the eye...'

Mr Bush said he was "confident" in the success of Mr Koizumi's strategy: "When he looked me in the eye and told me that he is going to take measures necessary to improve all three, I believe him."

Mr Koizumi for his part said his government was "making steady progress on reforms".

"Under any circumstances I will carry out structural reform. Without it Japan's economic growth cannot be achieved," he said.

Prior to the meeting, the US president had ruled out intervention to prop up the Japanese Yen. Talking to reporters he said the marketplace should be the mechanism that decided the value of currencies.

Support for Koizumi

Japan is currently experiencing its third recession in a decade, with huge bad debts seen as the major obstacle to an economic revival.

Mr Koizumi promised major reforms when he came to power, but critics have doubted whether he can carry them out.

President Bush said he thought Mr Koizumi would take the necessary action.

"I firmly believe the Japanese economy needs significant reforms and restructuring, as well as a focus on its loan portfolios," Mr Bush said.

"I am more than confident that the prime minister understands this and is willing to make difficult decisions," he added.

"I believe my friend will be able to lead the economy out of its doldrums."

The market knows best

Mr Bush also said the market was the best way of deciding the value of currencies.

The yen has steadily fallen against the dollar since September, making Japanese exports to the US cheaper.

Last week a trade organisation representing the main US car makers called on Mr Bush to put pressure on Japan to stop the yen's fall.

But Mr Bush said the values should be left to the market.

"My position is that the marketplace ought to make the decisions about currency valuations," he said.

"Our government will continue to take steps necessary to make sure our dollar is a strong dollar by good fiscal policy, good monetary policy and good regulatory policy.

"Our hope is first and foremost that the Japanese government makes... the right decisions to give the marketplace something to adjust to - in other words that they start the process of reform."