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• Japan told the General Agreement on Tariffs and Trade that South Korea's five-year import diversification plan violated the spirit of the world trade governing body, a Foreign Ministry spokesman said. The notification came in Japan's answer to a recent GATT questionnaire on unfair trade practices, the spokesman said. In the five-year plan, which starts this year, South Korea aims to reduce its dependency on Japan as a source of imported goods and to increase imports from the U.S. And Europe. Japan's move came after several unsuccessful bilateral negotiations on the plan, the spokesman said. "The notification does not represent anything resembling a formal complaint, nor is it intended to pressure South Korea. It is a routine procedure followed by all other GATT member states." ReuterCopy
• Japan cannot bear a further rise of the yen, Foreign Minister Tadashi Kuranari said. "A further stronger yen would be a misfortune for Japan and the Japanese people would not be able to bear such a burden," he told reporters. The minister said he wants to tell U.S. Political leaders of the sacrifices Japan is making to cut its trade surplus. Kuranari was widely expected to fly to Washington tomorrow for talks focussing on trade. But departure remains uncertain because of the continuing parliamentary boycott by opposition parties protesting plans for a new sales tax. If the boycott is lifted tomorrow, Kuranari would probably have to remain in Japan to attend parliamentary discussions on the government's 1987/88 budget, Japanese officials said. Kuranari said both the U.S. And Japan should approach the trade imbalance in a calm, unemotional manner. But, he added, "If the issue of rice is to be raised...I would mention the feelings of the Japanese people." Japanese politicians have said repeatedly the country cannot bow to U.S. Pressure to liberalize rice imports because the issue is too sensitive. REUTERCopy
• The European Community Commission confirmed it granted export licences for 59,000 tonnes of current series white sugar at a maximum export rebate of 45.678 European Currency Units (ECUs) per 100 kilos. Out of this, traders in West Germany received 34,750 tonnes, in the U.K. 13,000, in Denmark 7,250 tonnes and in France 4,000 tonnes. REUTERCopy
• Chancellor of the Exchequer Nigel Lawson's Budget speech was described as sound and well balanced by analysts, if slightly lacking in excitement. A cut in bank base lending rates is now widely expected tomorrow, with most forecasts predicting a half-point fall. A follow-up half-point cut is anticipated next week. "Worthy but boring would probably sum it up," Peter Fellner, U.K. Economist at stockbrokers James Capel and Co, said. "It was a very, very prudent fiscal budget." Richard Jeffrey of brokers Hoare Govett said it was a well-balanced budget within the confines of the government's philosophy of keeping expenditure levels flat. Most analysts said the Budget was very sound on the fiscal side, but offered nothing new on monetary policy. As was widely expected, Lawson split his "fiscal adjustment" between trimming the 1987/88 PSBR target to 4.0 billion stg from 7.1 billion and cutting basic rate income tax from 29 to 27 pct. The target for the narrow measure of money supply, M0, was kept unchangd at two to six pct, while the target for the broad Sterling M3 aggregate was dropped. Both Jeffrey and Fellner said the budget clears the way for a half-point fall in U.K. Base rates tomorrow, but the authorities are unlikely to sanction a larger cut immediately. Many analysts and currency dealers have forecast a full one-point cut tomorrow. "The Bank of England will be loathe to take any action which it will have to reverse later," Jeffrey said, though he added a further half-point cut was quite possible in the near future. The main worry from today's speech is the outlook for inflation, given the signs of relaxed monetary policy contained in it, Scrimgeour Vickers economist Richard Holt said. Holt noted the "rather loose" inflation forecast of 4.0 pct at end-1987, and said the lower interest rates likely to result from the tough fiscal stance could cause longer term concern. "A higher PSBR target could be preferable in the long term," he said, although lower mortgage interest rates on the back of falling base rates would have an offsetting impact on inflation. The Budget will inspire a lot of short-term confidence but it was "not a good budget for inflation," he said Jeffrey said he would have liked Lawson to say more about the dangers of excessive liquidity build-up but overall was not too concerned about a revival of inflation. Fellner noted that the exchange rate was to remain the "leading edge" of monetary policy, but said the authorities were likely to be extremely cautious on this front. He said they were unlikely to hesitate in holding interest rates steady or even raising them again if sterling showed any signs of excessive weakness. Most analysts agreed Lawson had bolstered the credibility of the Budget by adopting realistic forecasts. Raising the forecast for the current account deficit from 1.5 to 2.5 billion stg for 1987 would not unsettle the markets, which are already discounting that amount, Jeffrey said. that the 4.0 billion stg PSBR target was given credibility by the favourable outturn for 1986/87, which is now also forecast to be 4.0 billion stg. But analysts said the Budget speech did not give any clear-cut indication about the timing of the general election, which has to be held before June, 1988. Some believe it signals a poll this June, noting that the benefits, such as income tax cuts and the decision not to raise duties on alcohol and tobacco, become available immediately. But others said it kept several options open and it was not possible to deduce too much from it. James Capel's Fellner noted that by being fiscally prudent, Lawson had kept open the possibility of an autumn election in that there would be no "chickens coming home to roost." Richard Jeffrey, who favours the likelihood of a June election, said it was important the Chancellor had not gone for a Budget aimed overtly at buying an election victory. Nevertheless, he said, it was likely to result in a boost to the Conservative Party's pre-election popularity. REUTERCopy