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[TOKYO] Japan and the US emerged from marathon talks on a Pacific-wide free trade area claiming to be within reach of a deal on Tuesday, but analysts say they remain far apart on a project that neither can afford to see fail.
China's unexpected success courting dozens of nations for its Asian Infrastructure Investment Bank (AIIB) has highlighted its rising power and the need for Washington to get a win in the region, after years of criticism that its so-called "pivot to Asia" was empty rhetoric.
Tokyo needs the cover that the Trans-Pacific Partnership (TPP) affords to force through reforms to its sclereotic agriculture sector, one key element of Prime Minister Shinzo Abe's bid to revive his country's economy.
After talks that lasted until 3:00 am in Tokyo, US Trade Representative Michael Froman told reporters that gaps over the biggest sticking points of agricultural imports and auto sector access have been "substantially narrowed".
Mr Abe told the Wall Street Journal: "We think that an agreement between Japan and the US is close, but we're hoping that even more progress will be made."
"It would be good if I could reach an agreement during my meeting with the president, but when you climb a mountain, the last step is always the hardest," Mr Abe said, referring to his summit next week in Washington with Barack Obama.
The ambitious 12-nation TPP would, if realised, encompass 40 per cent of the global economy, largely through the participation of the United States and Japan - the world's biggest and third biggest economies, but not China, the second largest.
Negotiations on the pact have been bogged down for more than 18 months, with agreement between Tokyo and Washington proving elusive.
For Tokyo, getting around its powerful agricultural lobby is tricky - but it is an end as well as a means because reducing farmers' collective political power would bring economic dividends for Japan.
Despite the positive noises coming from both camps on Tuesday, analysts say the gap remains wide, particularly on rice and autos - sacred cows for Japan and the US, respectively, with neither keen to give up tariffs that protect important domestic industries.
But both are now feeling "a sense of urgency" about the accord, with China flexing its muscles in the wings.
Beijing has countered with its own rival bid for a common trade region in east and southeast Asia.
"The growing Chinese presence in the region has prompted Japan and the United States to speed up talks," said Masayuki Kubota, chief strategist at Rakuten Securities in Tokyo.
"Japan and the United States are feeling pressed to take the initiative before China crafts its own rules."
Takahiro Sekido, Japan economist at the Bank of Tokyo-Mitsubishi UFJ, noted that Japan and the United States have been shocked to see the Beijing-backed development bank win support not only in emerging economies but from developed nations.
"The auto and rice issues are still sensitive and tough hurdles but the two countries have got to show results" after China's success with the AIIB, he added.
Australia, Britain, France, Germany, Italy and Russia are among those who have said they intend to join the Beijing-headquartered US$50 billion institution - despite an intense lobbying campaign by Washington to persuade allies to steer clear of the new bank.
The TPP offers the chance for the US and Japan to pull one back in the Asia-Pacific, by establishing rules on trade and regional leadership that critics say has been missing.
"The fastest growing markets, populace markets, are going to be in Asia," Mr Obama has said.
"If we do not help to shape the rules so that our businesses and our workers can compete in those markets, then China will set up rules that advantage Chinese workers and Chinese businesses."
Last week, senior US lawmakers reached a deal on legislation that would give Mr Obama more authority to negotiate a deal, without fear that Congress will take it apart.
That, observers said, offers a glimmer of hope for the ultimate success of the free-trade talks, perhaps even during Mr Abe's tour of the US next week.
"There is a chance that the two leaders can reach an accord in Washington, though it may prove elusive," said UFJ's Mr Sekido.