Ambassador Baker Holds July 15 Press Roundtable

July 15, 2004

AMBASSADOR BAKER: Ladies and gentlemen, welcome. We're happy to have you. This is another in our periodic roundtable conversations. As far as I'm concerned, the meeting can be on the record, and you're free to use whatever you can dislodge from my mouth. So who would like to start?

QUESTION: Can we talk about Mr. Jenkins?

AMBASSADOR BAKER: You came on a very rich news day.

QUESTION: Of course, the word is everywhere that the Japanese government would like to bring him here for medical treatment. Of course, there's also the U.S. position that he should face charges. So of course the question would then be: What is the U.S. position exactly, when it comes to Mr. Jenkins?

AMBASSADOR BAKER: Well, I'll have more for you later about that. I've asked for specific instructions, but as of now, my instructions are the same as they have been in the past. That is, he's classified as a deserter, and the U.S. will seek custody as and when he comes to Japan, and proceed under the provisions of the SOFA for that purpose.

Now, that leaves several blanks in there: One, when the U.S. will do that. I have no instruction on that, but I'll reiterate. It is the intention of the United States to go forward with the original instruction. That is: If and when he comes to Japan, we'll ask for custody - exactly when remains to be seen, and you'll understand, I'm sure, when I say, we have an obligation to let the Japanese government know that before I tell the press that. But that will be decided in due course.

And to face charges - that also remains unchanged. He is still classified as a deserter, and as and when we can gain custody of him, he will be charged. With what and when and on what basis, I can't tell you, but it will be treated as the very serious incident that it is.

Beyond that, I can tell you that the U.S. government is sympathetic to his health condition, to his family arrangements and circumstances. We understand all that, but I guess that's all I can tell you about it.

QUESTION: Would we be right in thinking that the U.S. view is that he is more useful as somebody who can tell you about 40 years in North Korea than as an old man in a prison cell?

AMBASSADOR BAKER: Any time a reporter starts out, 'Is it fair to say ...' I know I'm in the business of rewrite and edit. No, I stand on what I said. That's all I can say and all the authority I have. That is, he's classified as a deserter; the United States intends to ask for custody when and as he comes into Japan and that we have the opportunity to do so.

You should also know, and you should also assume that I stay in close touch, not only with Washington, but also with the Japanese government. I think both the Japanese government and the U.S. government are committed to the idea that nobody should be taken by surprise. We should deal frankly and openly with this procedure, and we will do that, but that's sort of what I had in mind when I said rather than answer that question, I should communicate first with the Japanese government.

QUESTION: When have your latest conversations been with the Japanese government on this?

AMBASSADOR BAKER: About five minutes ago, but I have been talking all morning to the Japanese government on this. And to Washington as well.

QUESTION: I think the Japanese media have been reporting this morning that there will be a joint committee to be struck, and that there were certain guarantees given that Mr. Jenkins wouldn't be taken into custody while he was under hospitalization or was under medical care.

AMBASSADOR BAKER: Well, I've seen that speculation. I have no authority to say that. My authority extends to what I've just told you. Now I can speculate - but I won't, and you are free to speculate, that when I say that we're mindful and sympathetic to his health condition, that that would be taken account of, but I can't translate that into days or weeks or months. I just can't do that.

QUESTION: You started off by saying that you were going to seek some kind of clarification on this now.

AMBASSADOR BAKER: On my authority?

QUESTION: Yeah, does that mean you expect to make some kind of change in the official statement?

AMBASSADOR BAKER: No, that didn't imply that. What that implies is that I want to be very careful to make sure that I say exactly what I'm authorized to say, because this is a matter of extraordinary importance. It is at the presidential level, that is to say, I know first-hand that the President and the prime minister discussed it, both in Crawford, Texas and also in Sea Island. So it's not a matter that's being handled in the depths of the bureaucracy. It's at the highest level, the prime minister and President level. I want to make sure, then, that I reflect exactly what the U.S. position is, and that's the reason I said that. It does not imply anything else.

QUESTION: But it is possible that he could come to Japan and not face immediate apprehension or prosecution by the United States?

AMBASSADOR BAKER: Oh, there are two or three levels in there that you just described. It's certainly possible that he could come to Japan, and that the U.S. would insist on its rights, but that actual custody would not be sought or consummated under some circumstances. I just don't know that. But they're not bound together, you know. There's flexibility in each one of those steps. But the important point is: The United States does not recede from its classification of Jenkins as a deserter, and that we will pursue our rights when we have him in custody. I do not know the outcome of that, and I do not know when that will be, but I do know those two points are unchanged.

QUESTION: Ambassador, does the United States government have any information to suggest that there may be some doubt over this classification of him as a deserter? Do you have information that...whether they think it's possible he did not desert?

AMBASSADOR BAKER: We have no indication of that here in this mission. The totality of our file supports the view that he did desert, as described and that he did participate in activity that was probably traitorous. We have no contrary information in this Embassy. If there is, we are not privy to it, and I don't think there is any such information.

But you know the truth of the matter is, this man is in terrible shape. His health circumstances are really barely short of extreme, and I have no doubt that he's in need of skillful medical attention.

QUESTION: Could such skillful medical attention not be provided on a military base in Japan? On a U.S. military base?

AMBASSADOR BAKER: It could be. Certainly it could be, but we have not insisted on that.

QUESTION: What's he ill with? I mean they say that he's had an operation that didn't go well with his stomach ...

AMBASSADOR BAKER: We don't know exactly. It was an abdominal operation, but we have not - or at least I have not been supplied with any further information. I believe there's - I think that's (inaudible) to say, but I will - I think there's a likelihood that American doctors will consult with Japanese doctors after he is examined fully, and we'll have a better picture exactly of what shape he's in, but that has not yet occurred.

QUESTION: In Jakarta?

AMBASSADOR BAKER: I don't know that, either in Jakarta or here, if he comes here.

QUESTION: There were other reports today that the U.S. has developed a new strategy for the military bases in Japan. I'm curious whether or not you can tell us anything more about what's been decided and what's going to be presented to the Japanese?

AMBASSADOR BAKER: No, I really can't. I think the Japanese have been pretty fully informed as this evolves and develops. I doubt that there will be any surprises. This is a process that has been under way for some time. As you know, Secretary Rumsfeld has planned to re-examine the entire array of military forces around the world, including Japan. There have been extensive conversations here with Japanese officials and in Washington about how that will be implemented. I think it is fair to say that no final decisions have been made, but that it's a matter under active consideration, not only here but in other parts of the world as well.

QUESTION: What was your analysis of the elections on Sunday? Do you think the prime minister has been weakened by the results?

AMBASSADOR BAKER: Well, I think, first of all, it must have been a disappointment, in that they had hoped for one or two more seats in the House of Councilors, but I do not think of it as a defeat, because they still have a functioning majority with the Komeito. They will be able to move their program, presumably, as a result of that coalition. I really do not think of it as a defeat, and therefore do not think that the prime minister was seriously wounded. It may or may not have had some impact on his ability to move issues. We just don't - I just don't know that, but I resist the idea of describing it as a defeat for the LDP. I think instead it was a disappointment.

QUESTION: Do you think it will have an impact on the government's policy in Iraq?

AMBASSADOR BAKER: I have no reason to think it will. I do not believe it will. It will probably have an impact on a whole range of things, especially recognized Koizumi initiatives like postal privatization and anti-trust reform and things like that, but I don't necessarily think that they will be adversely affected, but they are far more likely to be affected than, I think, the external and foreign policy aspect of it. Indeed, I do not think it will affect Japan's commitment to SDF assistance in Iraq, and I think that will remain in force.

QUESTION: Do you think a two-party system with regular changes of government between those two parties is a plausible ...

AMBASSADOR BAKER: Scenario? I met yesterday with Okada, and we had a long conversation about that, a very philosophical, politician-to-politician conversation. He, by the way, is a very capable person and a savvy politician. And I pointed out to him - perhaps I shouldn't say this - but I pointed out to him that certainly they have earned the right to express pride and pleasure at their achievement, but if they are speaking of a two-party system in the American format - that is two broad-based parties rather than two ideologically confronting parties - that there's a difference between the mathematics, perhaps, and the reality, and that I think they grew closer to the two-party concept, but it may be that in a parliamentary system, that you don't have an exact counterpart to the American two-party system. And Japan, after all, is a parliamentary government.

But certainly the DPJ has improved and enhanced its leverage and its political position, and it'll be recognized as a major force in Japanese politics. Incidentally, I have helped arrange meetings in Washington for Okada, and he will, I'm sure, be received as a distinguished Japanese politician and public official and accorded the stature that goes with that. But whether or not Japan is about to enter a two-party system, as Americans understand it, I'm not yet sure. I'd rather think it will be something else, driven by the necessity of a parliamentary government instead of a congressional one.

QUESTION: How important it is for the United States that the SDF remain in Iraq in this post-interim government period, that Koizumi's taken this controversial decision to extend the mandate of the SDF in Samawah?

AMBASSADOR BAKER: Well, I think it's important, but it has always been important. I think it's no more or less important now than it was before the election. I think that it's good to keep in mind that the United States has always said, and now says, that the SDF forces are there to aid and assist in the rehabilitation and reconstruction, and they're there to further the interests of Japan - not the United States. So it's up to Japan to decide what they do with that, and now it's up to the Iraqi government to request or direct what happens there. But I think, from my point of view, the very best arrangement at the moment is for them to stay where they are and to continue with their good work and cooperate with other allies in Iraq, to get on with the reconstruction of that country.

QUESTION: I'm interested, you presented very much it is essentially up to the... that it's a decision for the people of Japan and for the welfare of the people of Samawah, but the United States has expressed disappointment about the decision by the Philippines to start pulling out its very small contingent just a short time before they were due to pull it out. Presumably, the U.S. has a bit more of a position than that on the 550 Japanese troops remaining in Samawah.

AMBASSADOR BAKER: I don't think there is an exact analogy. I think that the Japanese force there, while small, is far more important, both to Iraq and to Japan and the United States. I think that it is not appropriate to analogize the Philippine situation to the Japanese situation. I do not think they are similar. I think they're unlikely to have a similar outcome, but I don't think the one will have any significant effect on the other.

QUESTION: So the withdrawal of troops by the Philippines, you don't think...the Japanese had hostages there too, and that was a big drama in Japan as everywhere else, you don't think that the Japanese, now with the Philippine withdrawal and others, would start thinking about whether or not ...

AMBASSADOR BAKER: I think it's far more likely that the Japanese will observe that giving in to terrorists creates more terror. And indeed I think it does, and I think that the Philippines will find that that's the case. I fear that their caving-in to terrorists on this issue will embolden other terrorists against the Philippines. I hope not, but I fear that. And I think the Japanese will not fail to observe that, and I think they are unlikely to follow the Philippine example.

QUESTION: Is that a belief, or have you had pre-emptive political discussions about what would happen in the case of Japanese troops being taken hostage?

AMBASSADOR BAKER: What do I think would happen?

QUESTION: No, are you giving a best analysis that that would be the Japanese position, or have you had discussions with the Japanese government about what they would do?

AMBASSADOR BAKER: That's my opinion. I have no consultation with the Japanese government on that point. But it's a good question. I should have thought about that.

QUESTION: What's your reading on how strong support in Japan is for the Japanese government's policies towards Iraq and keeping troops there. You must try to gauge public opinion and try to guess what the government might try to do next.

AMBASSADOR BAKER: I think the Japanese government is fully committed to the deployment of SDF in Iraq. I think the Japanese people - my polling results are divided on it, but it's interesting to me that the Japanese people by very large margins admire the SDF forces that are there. I'm not sure that's the determinative number, but it's an important number. I do not think that there is an increased likelihood that the Japanese public will call for the withdrawal of SDF, and I think it is unlikely that the Japanese government will seriously consider that.

QUESTION: With the results of the Butler inquiry yesterday in the UK, and obvious criticisms have been made of the intelligence gathering led by the British and U.S. services, have those criticisms caused you to re-examine the quality of intelligence you have on East Asia? I'm thinking particularly of North Korea. Has there been a questioning of the quality of your information, and is there any change in your strategy now that those revelations have been made?

AMBASSADOR BAKER: Well, to begin with, I think it's extremely unfortunate that the quality of intelligence given to the President and other U.S. officials proved to be inadequate or inaccurate. It's a major tragedy, and I'm sure that we will address that appropriately in the United States. Has it had any direct effect on our analysis of the situation in North Korea? Not that I know of. I have no reason to think that our intelligence on North Korea is faulty. I'm briefed on North Korea almost every day - I guess every day - and our information is cautious and careful and important. But I do not think that the intelligence failures in Iraq automatically signal an intelligence failure in North Korea. I have high confidence that our information - which is sketchy at best in North Korea - isn't faulty. So I continue to have confidence in the assessments given us, and I believe the President does as well.

QUESTION: Speaking of North Korea, could you give us your assessment of the fact that the U.S. dropped the request for CBIDs, specifically in the last six-party talks, and whether or not that came as a result of requests from Asian allies, South Korea and Japan?

AMBASSADOR BAKER: I'm going to say something facetious but it's appropriate. That is: My father taught me years ago not to say more than I know. And in this case, I do not know the answer to that question.

QUESTION: Could you give us at least your assessment of whether or not the U.S. was trying to be more flexible in the six-party talks, or whether or not...what was the discussion behind it?

AMBASSADOR BAKER: No, I can't. I think this: I think number one, it was a major move forward that the six-party talks occurred at all. I think that's a major achievement. And I think, by the way, that China deserves high marks for encouraging that and even arguably sponsoring that. Number two: I think it's important in the scheme of things that there be multinational conversations on the nuclear danger on the Korean Peninsula, and I am glad they are continuing. Number three: I think that while there has not been a concrete achievement in terms of reducing the risk of a nuclear problem on the Korean Peninsula, that at least it is better recognized and described than it was before. So taken together, I think the six-party talks have been very valuable indeed. I'm glad that the United States and our friends are involved in it, and I am hopeful that it will produce better results in the future.

QUESTION: There has been talk recently of Japan wanting to normalize relations with North Korea in the future. What kind of role do you see the Koizumi government playing in the six-party talks?

AMBASSADOR BAKER: Well you know, Japan and Prime Minister Koizumi personally have long advocated - and they've proved it in relations between North Korea and Japan, and he has taken some courageous steps in that respect, having visited there twice, to begin with. But he has also made it clear that they had to do two things, as I recall. One was to take care of the hostage issue, and they've made major strides there, but it is not yet complete. There are a number of hostages perhaps that are still there. And the other is to address the nuclear issue, and certainly they have not done that. If they continue to deny hugely that they have HEU capability, sometimes they allege they do, sometimes they deny that they do. I guess you can sort of take your pick, but I don't think the second consideration established for the prime minister has even been partially met. So I think it is unlikely that you'll see a formal rapprochement between Japan and North Korea until that second issue is better addressed. But that is a question really you should ask the Japanese. Anything I tell you is speculation.

QUESTION: When am I going to be able to go into Yoshinoya and have a beef bowl?

AMBASSADOR BAKER: Soon.

QUESTION: Soon months or soon years?

AMBASSADOR BAKER: Soon. And the next question is 'How soon?' and my answer is very soon. No, I don't know when. There are still issues to be dealt with. I think we've made major progress in this field. I think the makings of a settlement are at hand and visible. I think that there are remaining, perhaps bureaucratic issues that have to be dealt with in both countries. I think the requirement that the embargo on Japanese beef be raised at the same time as the embargo on American beef is a further complication, but it is not impossible to deal with. But it may require a little more time. We may have to have some legislation to do that on the American side. We may have to have some creative administrative work in order to make that happen simultaneously. But as I say, I believe the formula for a resolution is at hand, and now it's a question of implementing it and overcoming awkward bureaucratic obstacles.

QUESTION: What are those obstacles?

AMBASSADOR BAKER: What are the obstacles? Well, I think that ultimately they are what I described. That is to say, the insistence that it be simultaneous or near simultaneous. And I think that both Japan and the United States have regulatory requirements of how they can do that. Conceivably you could do it in the United States by permit, but permit was highly criticized in the case of Canada. So I don't know whether they'll do that again or not. If not by permit, then it will have to be by legislation, and we've got a cranky Congress on our hands right now, so I'm not sure how fast that would be. That's it essentially, and my guess is, our friends in Japan will mirror and reflect the action that we take.

QUESTION: What is the solution that you're both talking about? Is it not to test cows under 30 months?

AMBASSADOR BAKER: No, I think that's pretty well addressed. I think two things: One is that - is it 30 months?

MODERATOR: I think it is 30 months.

AMBASSADOR BAKER: I believe so. But I think that beef exported to Japan will be 30 months or younger, because so far they've never established the BSE prions in cattle under 30 months. The other is that risk material, so-called, would not be included - not only in beef, but also in other cattle products such as food and other things. The risk materials are brain, brain stem, spinal cord and I don't know what else. But none that has instantly appealed to me as something that I would want to have in the butcher's box.

QUESTION: I'd like to get your reaction on the UFJ-Mitsubishi Tokyo talks of merger.

AMBASSADOR BAKER: Well, I only know what I've read in the paper about that. But it appears to be a logical move. It's not unheard of in the U.S. to see very strong banks merge with less strong banks in order to make a stronger consolidated entity. We've been doing that for a long time, but more particularly since the banking difficulties of the 1980s. So it's a demonstrated technique. I don't know enough about the detail to comment on a specific case, but I do recognize that it is something that is appropriately done in the banking community of our world.

QUESTION: Do you believe there's a reasonably open, level playing field here in Japan for outside banks to be able to get involved in these consolidations?

AMBASSADOR BAKER: You mean, do I think this merger will...?

QUESTION: I think, in general the Japanese banking system, when opportunities like this arise, is there a fair playing field for all outsiders to be able to...?

AMBASSADOR BAKER: No, I think that Japan has already demonstrated that it is willing to consider outside investment in the banking system. You've got Shinsei Bank, which is a prime example of that, and you've got others that either have or are about to mature, I think. So I think in a way, the Japanese banking system is entering the international community, in banking, and I think that's good.

QUESTION: What is your assessment of the Japanese economic recovery right now, and what more do you think the Japanese government should do?

AMBASSADOR BAKER: Well, I think it is a remarkable recovery. I think it is now well established. I think the trend line is solidly up and is likely to continue. I think improvements in the general economic situation are likely to continue in Japan. There are spots in Japan, as there are in America, where the distribution of economic opportunity is not uniform. But, I think it's very remarkable that Japan has recovered as far as they have, as fast as they have. I think that's due to the wise policies of this government and also to a recapture of optimism by the people of Japan. So I think it's good. How long will it continue? I think it will continue for a long time. I think Japan is now launched on a period of economic activity that is likely to continue. I think deflation is no longer the issue it once was, and they may have the luxury to worry about inflation before long. But I think the Bank of Japan has handled that very well. I think the government has handled it very well. So there.

QUESTION: May I ask a question on human trafficking? What kind of response have you had from the Japanese government since the State Department put out that report?

AMBASSADOR BAKER: You should talk to my wife about that, because she is deeply involved in that conference, but speaking less expertly than she can, I'm very pleased with the Japanese response. There have been indications that Japanese law enforcement officials are addressing this issue in a very serious way. There is much yet to be done, but it seems to me - being a non-expert in the field - but it seems to me that there has been significant progress. And while I do not relate all of that to the recent conference on trafficking here in Japan, I do think that that had a focusing effect, and I think it had a good effect in Japan - perhaps in other parts of the world as well.

QUESTION: Was the Japanese government shocked by the State Department report? Were they taken aback by it?

AMBASSADOR BAKER: I'm sorry?

QUESTION: Was the Japanese government shocked or taken aback by the State Department report?

AMBASSADOR BAKER: I don't think so because, as I do in most cases, I keep them pretty well advised, to the extent that I can. No, I don't think they were surprised. I think they were aware of the possibility. But that is part of my job, to make sure that ...

QUESTION: ... that they're not shocked?

AMBASSADOR BAKER: That they are not shocked. And its part of their job to make sure I'm not shocked. It works both ways.

QUESTION: Were they in basic agreement with what the report said?

AMBASSADOR BAKER: I can't say that, and I don't recall any statement to that effect, but I didn't hear any great hue and cry against it. But I certainly can't say they were in accord with it. I think it was a worthwhile conference. I think it's had a good effect. There was a big piece in the Financial Times - I guess the weekend edition, front page of the second section, I think it was - not on trafficking but on prostitution and related matters, which was interesting.

QUESTION: Did you agree with it?

AMBASSADOR BAKER: I think I do, but once again, I'm not expert, and I have trouble enough defending the things I know about without having to defend things I don't know about. So I don't know.

QUESTION: Moving back to the economy a little bit. You know we used to - years ago - we used to hear more about trade disputes between the United States and Japan, a lot more than we do these days, and I'm wondering what's your assessment of that? Have things changed that much?

AMBASSADOR BAKER: In Japan?

QUESTION: Yeah, in terms of trade between the United States and Japan, the trade issues.

AMBASSADOR BAKER: Well you know, I had anticipated when I came that trade would occupy much of my time here as Ambassador. Of course it indeed has been a focus of my predecessors' concerns over the years. But I find it does not, and most of the trade issues are resolved either on a commercial basis or by negotiation, or have been resolved through previous encounters between our countries. There are still trade issues. We still have a very large section here in the Embassy that deals with trade matters. But it is not the number one issue that addresses itself to the U.S. Embassy in Tokyo. It's a little strange, considering our history, that as we had so much turmoil on trade, it had been long ago when John Connolly was talking about leaving the Toyotas on the dock, and I met with a distinguished member of the management of Toyota the other day, and I believe I offended him when I said, �gIn America you are thought of as a great American company. Not a Japanese company.�h

QUESTION: I'm sure he was pleased.

AMBASSADOR BAKER: And he couldn't decide whether he liked it or not, but we've come a long way since then. It's also remarkable, given the fact that our two economies are so intertwined and so large. But I think we have also come a long way in our ability to negotiate away economic and trade problems. We have a skillful staff here at the Embassy that spends a lot of time on negotiating away problems. And they are by and large pretty successful.

QUESTION: Do you think with the Japanese economy improving so impressively that there will be more pressure to pressure the Japanese on existing trade?

AMBASSADOR BAKER: I don't know, but what I think will happen is with the improving Japanese economy that you are likely to see more pressure for U.S. investment in Japan. I think direct foreign investment is going to be the next big deal in Japan.

QUESTION: With the trade issues less on your plate than you previously imagined, I wondered how far the U.S. government itself is going to get involved in protection of U.S. intellectual property, particularly in East Asia. I know this isn't just a Japanese issue, probably more so in China...

AMBASSADOR BAKER: Certainly more in China.

QUESTION: But how is the government actually going to do the work on behalf of these companies to protect that intellectual property?

AMBASSADOR BAKER: Well I don't know. We are going to be very deeply involved in that, but that is not my specialty. I'll have to have others give you more detail about that. I do know that it's a special focus in China and other parts of South Asia, Southeast Asia, and I'm sure it is here as well, but not to the extent that it is in China. In China and some other countries, and even in India, it's a major problem and calls into question the whole concept of patent protection and copyright protection. But I'll talk to you about something else.

QUESTION: I understand that the main point regarding the economy is that things are going a lot better with the trade issues. Overall things are much better now. But that said, what are the front-burner issues now? You know, we talked a little bit about beef, but what are the other front-burner issues that you have going on?

AMBASSADOR BAKER: Trade issues?

QUESTION: Yeah, either trade or economic issues?

AMBASSADOR BAKER: I think we addressed a question about the Doha round, and talking about South Asia and whether or not we could get anything done this year. I think intellectual property, as we just discussed. I think that the movement toward FTAs is a growing trend and will have to be carefully observed and examined. The U.S.-Canada-Mexico FTA is now serving as an example and a pattern for other parts of the world to do the same. I personally feel that's a good thing, and I do not think that FTAs necessarily at variance with a broader approach to freedom of trade between countries, but rather, properly handled, can be an adjunct and help in that respect. But I think you're going to see more FTAs, between Japan and other countries, between China and other countries. It's not out of the question that some day you may see an FTA between Japan and the United States. After all, there are great similarities in our economies.

QUESTION: Currency issues have completely gone away? Currency intervention issues?

AMBASSADOR BAKER: I don't think that's a major issue. You mean intervention? No, I don't. I think economic reality argues against extensive governmental intervention. But we'll see. It would not be the first time I've been wrong.

QUESTION: The Japanese government was practicing it very extensively last year, for reasons, presumably, to keep the yen weak. I'm not entirely sure what the strategy was. Presumably that option is there. There's a sort of pattern, possible options for them, and it did cause some distress in the U.S. last year.

AMBASSADOR BAKER: And it would again, but I don't know. I cannot predict what that will hold in the future. I think, though, that the outreach by Japan and China, direct Japanese investment in America, other investments, particularly in Mexico, say, Argentina and Brazil, argue against any broad-based intervention by the government. I think it argues instead for a greater reliance on the world market and competitive forces.

QUESTION: So you would say that the economic recovery that you...is now well established. You believe that would have taken place without the intervention on the yen?

AMBASSADOR BAKER: Oh, I do think so, but you know I have a jaundiced view about monetary policy. I don't think even central banks in countries like England and the United States or in Japan really have a profound effect on monetary values in the long term. The volumes are so great - the amount of money in circulation is so great compared to what the interventions can do - that it may have a short-term and temporary effect, but it almost never has a longer-term effect, and I think that the recovery here would have occurred without the sustained intervention by Japanese...the Bank of Japan.

QUESTION: Nevertheless, personalities obviously do play a role, and you know since Greenspan's irrational exuberance coming eight years ago, I think he as a personality is certainly ?

AMBASSADOR BAKER: I think you're exactly right. I think the psychological impact of remarks by Greenspan or others in the international monetary field has a far more profound impact than direct intervention does. I think that's been proven with Greenspan and the United States. I think also here in Japan.

QUESTION: If there is no real effect it's only a matter of time until the psychological effect dissipates...

AMBASSADOR BAKER: The psychological effect on the market?

QUESTION: Yeah, on the central bankers' commerce.

AMBASSADOR BAKER: Yeah, I think so. The old adage is at play as well, that is 'success breeds success,' and as the economy improves there will be a tendency to have greater confidence in not only currency but in the trading arrangements, and stability - stability is the key, you know. We talk a lot here in the Embassy about what Japan's going to be like in ten years. Sometimes we also think about what is China going to be like, or what is India going to be like, and there the unknown, the really big unknown is stability. How stable are these economies and these societies and can they sustain monumental growth as they have here in Japan, which is a very stable country.

So, I have no estimate of that except to point out that it's not all today's numbers, it also is a look into the future about political stability, economic stability and psychological impact, that is, how willing are other countries to see direct foreign investment, especially American and Japanese investment. You've got other factors at work that have to be dealt with too. You know, it is no secret to say that in China for instance there's still a significant body of resentment of Japan left over from World War II, and you run into that in a lot of ways and that really has to be addressed and dealt with. I was in China recently and pointed out to an official there, a ranking official, that - he was fussing about the prime minister's visit to Yasukuni Shrine. I said, 'Well look, the United States and Japan really had a first class war there for a while and we've gotten over it and we're best friend's and allies. It's time for you to get over it.' He didn't like that a bit. He said, 'You don't understand,' and I said well, 'Somebody doesn't understand.'

But, I don't think (inaudible). But that has to be addressed as well-- that is the national prejudice, the residuum of prior conflict. Things of that sort have to be addressed as well as the question of direct government intervention in currencies in terms of trade policies, even in free trade agreements and the like. Unless the psychological component, the political component will support a stable economy, you're not going to see long-term and sustained growth. So that's another factor that has to be addressed.

QUESTION: When you do your blue-skying over what Japan will be like in ten years, where do you think the constitution will be in ten years, and does Washington have a view on constitutional revision?

AMBASSADOR BAKER: Yeah, well you know America does not have a formal position on constitutional revision, and certainly not on Article Nine, but I guess it's our observation that there's an increasing likelihood that there'll an address to constitutional revision. I think you see responsible Japanese politicians who are dealing with that openly and practically. When I came here, which is just over three years ago, it would probably have been politically disastrous for a candidate or a politician to talk about Article Nine revision. But now it's on everybody's list, you know. They talk about it very freely and directly.

So things have changed, and I think Japan has changed - and I think based on that there is a high likelihood that there will be some sort of constitutional revision. You see major political figures like former Prime Minister Nakasone, and even the prime minister himself who suggest there's the need for a revision of the constitution. The U.S. certainly does not stand in the way of that, notwithstanding that it essentially was drafted by American occupation forces. It's different, and it's one of the trappings of sovereignty that you can order and change your charter document as circumstance dictate from time to time, and I think Japan probably will, in probably less than ten years.

I think Japan - this is probably more philosophical than you care to hear but - I think this week's issue of Newsweek has a picture of a Japanese Aegis cruiser, destroyer on the front cover with the Japanese battle flag flying, and the story implies, I think correctly, that Japan is changing, and Japan is changing. I think Japan has decided, 'We're a great, big country; we're the second largest economy in the world; we probably have the second largest navy in the Pacific; we want a seat on the Security Council; we want a role to play in the international arena.' I think those changes are all at work and will continue for the next ten years.

QUESTION: How much concern do you have, or the United States have about the real possibility that this will change the nature of the U.S-Japanese alliance, if Japan tries to reposition itself in a strategic role here in the Pacific? There's always...that possibility has to be there that Japan doesn't simply rely on the U.S. alliance in the way that is has for the past forty years.

AMBASSADOR BAKER: Well, I don't think Japan will, and I don't think Japan intends to. I think Japan intends to carefully and prudently provide for its own security. I think that's why it has a large navy and a great air force. I think that's why it has troops, peacekeeping troops in East Timor and the Golan Heights and now SDF in Iraq. I think they're exercising the traits of an independent, sovereign power, and they'll continue to do that and I think that'll increase. Your question I guess is, 'What is America going to think about that in the future?' and - if we are as skillful as I hope and think we are in America - we will welcome that, and we will think of Japan and the United States not only as 'friends and allies' but 'better friends and allies,' in the future.

QUESTION: You've come toward the idea of being...of the alliance evolving to the point where Japan will not be relying so much on the U.S. but be acting more independently.

AMBASSADOR BAKER: Absolutely, no, absolutely.

QUESTION: To the point of its own nuclear deterrent?

AMBASSADOR BAKER: It's pretty much up to Japan, you know, what they do about it. The United States provides the nuclear umbrella, and I think appropriately so, and I think Japanese understand that. But if Japan were to go forward with a nuclear program, I don't think you'd see a great outcry by the United States in opposition to it, especially when you've got countries like North Korea that are obviously involved in a nuclear game. But, I would prefer not to see that. I would prefer not to have another nuclear power anywhere, but I don't rule out the possibility that Japan might do that someday, but we'll see.

QUESTION: You've been here for some years with a team of advisors, and we've already described Japan as a stable place. Often as journalists, sometimes we feel we can predict the end of a story before it's even broken. Over the last six months - we're halfway into the year - has anything taken you by surprise in Japan?

AMBASSADOR BAKER: Oh, everyday things take me by surprise, but nothing fundamental has taken me by surprise. I think Japan's recovery is a modest surprise. It's happening at a greater rate and faster than in January I might have thought. I think Japan's attitude toward its own defense arrangements is probably accelerating faster than I was prepared to think, but I think that's a good thing. I think that the psychology of the population, consumerism, and confidence and improvement in the banking system is coming along very nicely. I can't say as fast as I thought, but it's reassuring to know that it's happening. So, there are always surprises, but no huge surprises.

MODERATOR: I think we've used up the time that you've given us.

AMBASSADOR BAKER: We've not only used up our time, we've used up everything I know.

MODERATOR: All right, well that's a good place to quit.

AMBASSADOR BAKER: Time to stop, so thank you all for coming. Good to see you.