This, he said, can come only if Japan reduces its trade surplus, which soared to a record $120 billion last year.

This could also help reduce Japan's rapidly growing trade surplus, the source of tensions with Washington.

In its 1988 report on Japan's economy, the agency said domestic demand continued to spur growth and help reduce the country's large trade surplus.

Japan would reduce its trade surplus and cut interest rates.

American officials said the policy should encourage Japan to import more, which would help reduce the country's soaring trade surplus.

These consequences were seen mainly in their threat to curb progress on reducing Japan's huge trade surplus.

That would tend to reduce Japan's trade surplus, but would also slow economic growth.

This would in theory help reduce its trade surplus and help it serve as an engine for the world economy.

A stronger economy would reduce Japan's huge trade surplus - expected to reach $160 billion this year - and lift other economies.

That nation has been under pressure to reduce its huge trade surplus with the United States.