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Bush gives Japan economic advice

President Bush warned Japan's prime minister Monday to rely on domestic expansion, not export growth, to try to lead the world's second largest economy out of a deepening malaise that threatens U.S. jobs, wages and stock prices.

Bush's caution to Japanese leader Yoshiro Mori came hours after the Bank of Japan announced its intent to drive interest rates to zero, pushing the sagging yen to a two-year low against the dollar.

While Bush did not explicitly object to the measure, Cox News Service reported, citing White House aides whom it did not identify, the move presents risks for a slowing U.S. economy.

A weakening yen could help drive up U.S. imports of Japanese products, further widening a record trade gap _ $81.3-billion last year, in Japan's favor _ that some critics regard as a drag on U.S. growth.

Bush suggested there is a limit to how far that trade imbalance can widen, as he cautioned the prime minister not to rely on an export-led strategy to try to breath life into the near-listless Japanese economy.

In his first meeting with the leader of Japan, Bush stressed the strength of relations between Washington and Tokyo. Bush expressed regret over the sinking last month of a Japanese fishing vessel that was rammed by a U.S. submarine, which left nine Japanese dead off the coast of Hawaii. And he affirmed the close strategic relationship between the United States and Japan, home to nearly 40,000 U.S. troops, sailors and pilots stationed at U.S. bases around Japan.

"We view Japan as a very strong friend and ally," Bush told reporters during a brief photo session before his meeting with Mori. "And that's the way it's going to be during my administration."

The talks focused, though, on ways to invigorate economic growth in the United States and Japan, which together account for roughly 40 percent of the world's economic activity.

Adding economic diplomacy to the tax cuts and interest rate reductions he hopes will help rejuvenate a sluggish U.S. economy, Bush told Mori he was optimistic about the prospects for growth.

"We do have a plan to give our economy a second wind. I'm very confident about our economy," said Bush, who has spent much of his two months in office traveling the country wringing his hands about an economy he has said was "sputtering."

In brief remarks to reporters before his meeting with Mori, Bush suggested that it's time to begin singing a different tune, saying the economy, which slowed to a 1.1 percent annual growth rate in the fourth quarter of 2000, was poised for renewal.

"I know it can beat expectations," Bush said. "I will explain that to him (Mori) as clearly as I can about, when our policies are in place, how optimistic I am about economic growth."

While Bush didn't peg his optimism to this, economists widely expect the Federal Reserve Board to cut interest rates by a half, or perhaps even three quarters, of a percentage point today, a move that would cut the cost of borrowing for consumers and businesses.

Bush is also working with congressional leaders in hopes of accelerating portions of his proposal to cut taxes by $1.6-trillion over 10 years, a move the White House hopes would give the economy another boost, however slight.

After weeks of pushing tax cuts as the centerpiece of his economic proposals, Bush has begun tacking economic revival onto his foreign policy agenda.

Bush spokesman Ari Fleischer said "it was a disappointment" that oil-producing nations made a weekend decision to cut their production by 1-million barrels a day, roughly 5 percent.

Bush said there was a silver lining, though, in Saudi Arabia's pledge at the OPEC meeting to use its massive output potential to prevent crude oil prices from rising above $28 a barrel.

"That's very comforting to the American consumer," said Bush, "and I appreciate that gesture."

The Bush meeting with Mori seemed less conclusive.

While Bush urged the Japanese leader not to try to export his country's way out of a decade of near-flat economic performance, there was confusion over Mori's response.

White House officials said Mori had agreed not to try to export Japan's way out of its doldrums; a Japanese diplomat later told reporters there was no such accord.

White House aides said Bush did not pressure Mori but that he did stress the need for Japan to lay a foundation for long-term recovery by undertaking broad-based economic, tax and regulatory reforms and by biting the bullet on nearly $600-billion in bad bank debts, much of which have been on the books for a decade.

The problems have contributed to a slide in Japanese stock prices. The closely watched 225-share Nikkei index slid 0.34 percent on Monday, closing at 12,190.97, near a 16-year low. The yen dropped to 123.36 to the dollar, its lowest level in two years.

Earlier Monday, Japan's central bank effectively lowered interest rates to zero to spur growth. On Friday the Japanese government announced the economy had entered a state of deflation for the first time since the end of World War II.

For his part, Mori said he hoped the United States would take steps to deal with its own economy, which he said "is slowing down." He did not elaborate, but U.S. aides said he was referring to a stimulus such as Bush's tax cut.

Mori's political future is in doubt and he hinted last week that he would resign next month.

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