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Japan hopes to leave farms out of U.S. economic talks - sources

By Yoshifumi Takemoto and Leika Kihara
FILE PHOTO: A farmer plants saplings in a rice field in Satsumasendai, Kagoshima prefecture, Japan, July 8, 2015. REUTERS/Issei Kato/File Photo

By Yoshifumi Takemoto and Leika Kihara

TOKYO (Reuters) - Japan will push to leave agriculture out of its first economic talks with the Trump administration next month, sources say, hoping to prevent thorny topics such as its heavily protected farm industry from blocking other negotiations.

Tokyo will propose an agenda for its dialogue with the U.S. in coming days, which will include a wide range of issues such as how Japan can provide technical assistance for U.S. railway projects and increase imports of U.S. shale gas to Japan, according to government sources with knowledge of the matter.

Policymakers aim to focus the debate on ways to assist U.S. efforts in boosting infrastructure investment, an area where an agreement may be more easily reached than other more contentious issues like trade, the sources say.

"We'll go with areas where a deal my be easier, such as infrastructure projects," a government official said on condition of anonymity as he was not authorised to speak to the media. "Other issues may take more time."

Many Japanese policymakers say the Bank of Japan and the Federal Reserve won't directly participate in the dialogue, to avoid any impression that governments are seeking to guide independent central bank monetary policy.

U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed last month to launch a bilateral economic dialogue to discuss issues such as macroeconomic policies, trade and infrastructure investment.

"What's important is to create a win-win situation for both sides. This is not something where one side wins and the other loses," Shunsuke Takei, parliament vice minister at Japan's foreign ministry, told Reuters in an interview, but did not comment on specific areas of negotiations.

Taro Aso, Japan's finance minister and deputy prime minister, and Vice President Mike Pence, who is expected to visit Japan next month, will lead the bilateral talks.

A spokeswoman at the U.S. embassy in Tokyo said the embassy was not in a position to comment.

FOCUS ON INFRASTRUCTURE

Japan, concerned about Trump's strident comments on trade and currencies, hopes to use the talks to avoid trade friction and ensure Washington is engaged in Asia-Pacific.

The agriculture ministry will not join the first round of talks, the sources said, a sign Tokyo wants to avoid facing pressure from Washington to open up Japan's agriculture sector.

While Japan's finance, foreign affairs and trade ministries will be mainly guiding the dialogue, the transport ministry will also take part to help draft plans on infrastructure investment co-operation, the sources said.

Trump has complained about the U.S. trade deficit with Japan and accused Tokyo of using its "money supply" to weaken the yen and give exporters an unfair advantage.

While he avoided harsh rhetoric during a summit with Abe last month, there is uncertainty on what demands Washington may make at the bilateral economic dialogue.

Trump administration trade adviser Peter Navarro on Monday called out Japan for its non-tariff trade barriers and said negotiations to use U.S. leverage as the world's largest market were needed to boost U.S. exports.

Another potentially contentious topic is the BOJ's ultra-loose monetary policy that keeps the long-term interest rate pegged at zero percent, widening the interest-rate gap with rising U.S. rates, which in turn weakens the yen.

Some market participants say Trump's comments on money supply could be directed at the BOJ and may discourage the central bank from expanding stimulus further.

While the BOJ may have informal discussions with the government on Japan's approach to the subject, it is unlikely to directly take part in the bilateral dialogue, the sources say.

"Central banks traditionally prefer not to join government dialogues like these, unless there's strong pressure to join," said one of the sources.

(Additional reporting by Tetsushi Kajimoto, Kaori Kaneko, Minami Funakoshi and Linda Sieg; Editing by Sam Holmes)