Bush Opens Japan Visit With Concern About Economy

TOKYO – Despite a verbal slip that sent Japanese economic markets briefly tumbling, President Bush expressed confidence in Japanese Prime Minister Junichiro Koizumi's economic reforms, aimed at pulling Japan from its third recession in 10 years.

Speaking to reporters Monday, Bush called Koizumi "a great reformer" but inadvertently mischaracterized a conversation they had on deflation as a conversation on devaluation.

"He talked about non-performing loans, the devaluation issue, and regulatory reform. And he placed equal emphasis on all three. And I'm not here to give advice, I'm here to lend support. When he looked me in the eye and told me that he is going to take measures necessary to improve in all three regions, I believe him. I believe that's his intent," Bush said.

With banks saddling billions of dollars in bad loans, deflation is wiping out the value of property they hold as collateral. Bush's comment briefly pushed down the value of the yen on world currency markets, but recovery was quick after aides explained the slip.

Nevertheless, the government has allowed the yen to slip against the dollar since November to make Japanese exports more competitive, a move that hurts U.S. industries.

"The policy prescriptions of the past — export-led growth and endless public works projects — cannot work," said Treasury Secretary Paul O'Neill last month during a visit to urge officials to deregulate industries, write off bad bank loans and stop trying to prop up the economy with a weak yen and deficit spending.

Koizumi, who promised to clean up bank debt and encourage competition in protected areas, has been trying to fight off demands that he revive the economy through increased government spending.

Meanwhile, the president and Mrs. Bush began their Tokyo trip at the Shinto shrine, honoring the Emperor Meiji, known as a reformer who opened Japan to the rest of the world in the late 19th century. The visit symbolized the economic reforms the United States wants Koizumi to make, though Bush is not pressuring his new friend publicly.

At the shrine, the leaders watched a display of horseback archers who seemed to miss more targets than they hit. In the old days, the archers used to commit suicide when they missed, but around the 14th century, a Japanese emperor decided that was counterproductive and wasteful.

On Monday, Koizumi downplayed the Bush's decision to include North Korea in his "axis of evil" with Iraq and Iran even though some members of the Japanese Parliament, the Diet, say Bush's comments hurt efforts to normalize relations with that country.

"The expression 'axis of evil' I believe reflects the firm resolve of President Bush and the United States against terrorism," Koizumi said. "President Bush, I believe, has been very calm and cautious vis-a-vis Iraq, Iran and North Korea. He will not exclude any possibilities in order to prevent the proliferation of weapons of mass destruction, to prevent terrorism. He will resort to all possible means to fight against terrorism."

National Security Adviser Condoleezza Rice said Sunday that the three nations were included in an axis of evil because they threaten the United States and the rest of the globe with their potential to use and sell weapons of mass destruction. Though North Korea is not sponsoring terrorists within its borders, its sale of missile technology may be passed on to terrorists groups, the administration warns.

The president will get a tougher audience in China and South Korea, both on his schedule for later in the week.

South Korean President Kim Dae Jung has tried to negotiate with North Korea, for which he won a Nobel Peace Prize. The United States has encouraged him to continue on that track, but the South Korean president has said he fears the appellation has damaged negotiations.

Some diplomats say China is the missing link in the axis of evil. Bush will press President Jiang Zemin about providing North Korea, Iraq and Iran with the technology that may be passed on to terrorist groups.

But his appeal may fall on deaf ears. China is not happy with the deal the Bush administration has offered Taiwan to purchase a number of Kidd class destroyers and diesel-powered submarines for defense against attack across the Taiwan strait. Communist China still considers nationalist Taiwan a renegade province. The United States officially recognizes that status.

Fox News' Wendell Goler and the Associated Press contributed to this report.