Clinton at town hall meeting Thursday

TOKYO (CNN) -- U.S. President Bill Clinton on Friday warned Japan of possible "retaliatory protectionism" if Tokyo did not open its markets under a rescue plan for Asia's devastated economies.

In a polite but uncompromisingly blunt speech, Clinton also suggested Japan's efforts so far to jolt its economy out of an eight-year slide may not be enough.

"With others in the region still struggling, Japan and only Japan can lead Asia back to stability and growth by meeting its own economic challenges," Clinton told a group of U.S. and Japanese executives at an American Chamber of Commerce breakfast.

He urged Japanese Prime Minister Keizo Obuchi's government to quickly carry out its banking reform legislation and the 24 trillion yen ($200 billion) stimulus plan that it unveiled on Monday.

RELATED VIDEO
CNN's John King reviews Clinton's first day in Japan
Real	28K	56K
Windows Media	28K	56K

But Clinton hinted the reform package may not go far enough and Japan must be prepared to try harder.

"Indeed, the people here may conclude that even more must be done to jolt the economy back into growth," Clinton said.

The U.S. president, who is in the midst of a five-day trip to Asia, also delivered a tough message on trade, suggesting that there may be a resurgence of protectionism in the United States if Japan is not seen to open up its own markets.

U.S. officials expect the United States' trade deficit to swell to $300 billion next year from the record $240 billion forecast for this year because of a flood of Asian imports, and they fear a domestic protectionist backlash.

"The worst thing that can happen is if it appears that when times are tough, borders are closing up...and then you're going to have, I'm afraid, a round of retaliatory protectionism," he said. "I'm quite worried about this now."

Clinton said a return of confidence in their country by Japanese consumers was key to the economy, "over any economic plan."

The White House has already seen discontent stir in the U.S. steel industry, where manufacturers and unions have filed an anti-dumping suit against Japan, Russia and Brazil over a surge in steel imports.

Clinton referred to a 500 percent surge in U.S. imports of Japanese hot rolled steel during the first eight months of this year, saying this could help undermine American support for keeping U.S. markets open.

"If there is a perception of unfairness, the consensus can disappear," he said.

"It will create in our country the potential for a retrenchment in a way that will not be good for Asia, for Japan or for the United States over the long run," Clinton said.

"We want to keep our markets open but we need fair, rule-based disciplined (trade) expansion and we need to avoid market penetrations that have no relationship to market factors."

Washington has pressed Japan for more than a year to move aggressively to jump-start its domestic economy, seeing this as a key way to counteract the Asian financial crisis that began in Thailand in July 1997 and has spread through the region and beyond to Russia and Brazil.

Japan has unveiled one fiscal stimulus plan after another, with each disappointing the financial markets.

After the latest plan came out this week, Tokyo suffered the embarrassment of seeing debt-rating agency Moody's Investors Service downgrade its government credit rating to Aa1 from the coveted Aaa, its highest rating.

After meeting Obuchi on Friday afternoon, Clinton flies to Seoul for a two-day visit to South Korea. He then travels to the U.S. territory of Guam before returning to Washington late on Monday.

Copyright 1998 Reuters Limited. All rights reserved.