NEW YORK -- William J. McDonough, president of the Federal Reserve Bank of New York, has advised Japanese businessmen that the Clinton administration places a "very high priority" on achieving an agreement between the two countries to liberalize trade and investment in financial services and other sectors.
Speaking in New York last week at the the Japan Society, Mr. McDonough said that both the United States and Japan have a vested interest in such an agreement.
"The linkages between our two economies in trade ... have their financial counterparts and each country has, particularly over the past decade, significantly increased its presence in the other's financial markets," Mr. McDonough said.
"Today, both our countries hold substantial stakes in each other's economies and financial well-being," he added.
Japan and the United States agreed in July to hammer out a trade framework by July 1994 on five principal areas, including improving access to each other's financial services markets.
Earlier this month, Japanese officials said that they plan to state the steps to open markets in "qualitative terms," and will not use numerical targets or goals. Those steps will be detailed in a report. The officials did not say when the report will be issued.
In addition to reform of Japan's regulated industries, including insurance and other financial services, to allow greater access by foreign banks and securities firms, the U.S. agenda includes:
* Increasing Japanese purchases of foreign computers, supercomputers, satellites, medical technology and telecommunications.
* Expanding trade in autos and auto parts.
* Harmonizing direct foreign investment and access to technology in both countries
* Implementing and monitoring existing U.S-Japan trade agreements.
Clear Imbalances Seen
Mr. McDonough noted that financial transactions between the two countries are already highly integrated.
Japanese official institutions and private creditors hold around 25% of all foreign-held U.S. government debt and about 3.5% of total U.S. government debt, without taking into account purchases of U.S. government securities on secondary markets.
Mr. McDonough noted, however. that there are some clear imbalances in the scale of banking and investment between U.S. and Japanese institutions.
Although institutions from both countries actively participate in each other's equity markets, Japanese institutions hold some $100 billion in direct investments in the United States, while U.S. institutions hold only about $26 billion in Japan.
The Banking Example
A similar imbalance emerges in banking, Mr. McDonough pointed out.
"It is clear that the presence of Japanese banks in the U.S. markets is far more dominant than the presence of U.S. banks in Japan's markets," he remarked.
"By the end of 1992, for example, Japanese bank branches, agencies, and subsidiaries in the U.S. accounted for about $100 billion in commercial and industrial loans, equivalent to roughly 17% of all such loans and a dramatic increase from the 5.5% share these institutions held in 1985."
In total, he added, Japanese banks in the United States held some $400 billion in assets by the end of 1992 while U.S. banks in Japan held only about $70 billion in assets.
"The dramatic increase in the presence of Japanese banks in the U.S. markets over the past decade has taken place in a broader context of an overall explosive growth of Japanese banks in the international markets," Mr. McDonough noted.
At the same time, he noted, Japan and the United States have to accommodate changes in financial markets and the stronger capital situation at U.S. banks.
"As both our countries begin to improve the efficiency of our economies and the welfare of our citizens, I believe it is absolutely critical that we, as the two wealthiest economies in the world, work together in making choices that may, more often than we like, be politically difficult," Mr. McDonough said.