Koizumi runs into hurdles in Malaysia

Koizumi runs into hurdles in Malaysia

George Nishiyama, Reuters, Kuala Lumpur

Japanese Prime Minister Junichiro Koizumi, on a tour of Southeast Asia, ran into some hurdles on Thursday when he met Malaysian leader Mahathir Mohamad who expressed concern about the recent yen fall.

Mahathir also stopped short of giving backing to Koizumi's proposal for a broad economic cooperation framework in the region, the centerpiece of Tokyo's new Asian policy.

The popular Japanese leader, in office for less than a year, was also grilled by the veteran Malaysian prime minister on the yen issue during a courtesy call preceding the official bilateral meeting.

"I am watching with interest whether the sharp fall of the yen will have an effect on the Chinese yuan and currencies of the ASEAN (Association of Southeast Asian Nations)," a Japanese official quoted Mahathir as telling Koizumi.

Koizumi reiterated Tokyo's official position, according to the official, saying: "We are not intentionally lowering it. It is something that the market should decide."

The Japanese currency has shed more than 10 percent against the dollar in two months, raising concern in Asia that a weaker yen will slow down Asian exports to Japan, already hit by the country's prolonged economic slump.

Malaysia was the second stop in Koizumi's roadshow to promote Tokyo's new Asian policy aimed at bolstering trade and other ties with the region.

On Wednesday, he got the backing of Philippine President Gloria Macapagal Arroyo for a proposal to create an economic cooperative "community" among the ASEAN+3 (Japan, South Korea and China), which may ultimately include Australia and New Zealand.

Koizumi also told Mahathir that involvement by the United States was vital.

But Mahathir stressed the importance of the ASEAN+3, and the Japanese official acknowledged that there were some differences among the two leaders.

"I would not say Mahathir agreed to it. But he and the prime minister agree on the role of the ASEAN+3. Mahathir puts priority on the ASEAN+3," the official said.

The main pillar of Koizumi's proposal is for a comprehensive economic cooperation framework among Japan and ASEAN, centering on free-trade agreements (FTAs), seen as Tokyo's counterweight to China's burgeoning influence in the region.

China stole a march over Japan at an ASEAN+3 summit in Brunei last November when it agreed with ASEAN to establish a free trade area within 10 years.

Koizumi and Singapore's Prime Minister, Goh Chok Tong, are set to sign an FTA when they meet on Sunday, which Japan wants to use as a springboard for forging similar deals with rest of ASEAN.

Malaysia has criticized the deal, as it believes bilateral agreements could undercut the Asean Free Trade Agreement (AFTA), which kicked off on Jan. 1.

Mahathir asked Koizumi about the state of the Japanese economy, adding that he hoped Tokyo will continue to provide financial aid to the country.

Japan is Malaysia's number one aid provider, but it plans to cut its global assistance budget by 10 percent next fiscal year due to the tight fiscal situation.

"We are considering a 10 percent cut, but we put importance on Southeast Asia, so we will take that into account," Koizumi was quoted as telling Mahathir.

Mahathir said he had no fears that Japan will turn into a military power, a concern raised in some Asian countries following Japan's move to dispatch warships to provide logistical support for the U.S.-led operation in Afghanistan.

But to Malaysians who suffered under Japan's wartime militarism, the memories are still vivid.

Malaysian Chinese groups rushed to a Kuala Lumpur hotel where Koizumi was staying, seeking to tell the Japanese leader their demands for Tokyo to repay tribute money they say the Imperial army "extorted" from their community during World War II.

Denied a chance to meet Koizumi, the delegation presented their memorandum demanding $132 million, to a Japanese official.

Koizumi is scheduled to deliver a speech in Singapore outlining Japan's new Southeast Asia policy on Sunday.

On Friday and Saturday he is due to visit Thailand, and Indonesia.