Japan and the United States have found "common ground" to forge a two-way trade deal, but may not be able to resolve remaining sticking points in time for a mid-May meeting of top negotiators seeking a broad regional deal, a senior Japanese official said.
Marathon talks during U.S. President Barack Obama's state visit to Tokyo last week yielded progress - hailed by the two sides as a "key milestone" - but the two sides stopped short of announcing a deal vital to the Trans-Pacific Partnership (TPP), a 12-nation bloc that would extend from Asia to Latin America.
The upbeat tone, however, was a contrast to the emphasis on "gaps" after previous rounds of talks on a bilateral deal that has been stalemated by differences over access to Japan's agriculture market and both countries' car markets.
"What Obama's visit produced after many lengthy negotiations was a common ground on which the two sides believe we can continue to work to find a mutually acceptable solution," the senior Japanese official told Reuters. He declined to be identified because of the sensitivity of the talks.
"We no longer have to worry that the lack of a Japan-U.S. pathway is going to block negotiations with other countries. This is a very important landmark Obama was able to produce," he said. But he added he was "not optimistic" that Washington and Tokyo could work out remaining issues "in a month or two".
Negotiators from the 12 TPP countries are to meet in Vietnam in mid-May, followed by a gathering of Asia-Pacific trade ministers in China on May 17-18. Obama and Abe will likely meet next at an Asia-Pacific summit in China in November.
Both Obama and Abe have domestic constituencies keen to see their leaders stick to rival stances: a U.S. demand that Japan scrap all tariffs and Japan's pledge to protect politically powerful farmers in five sectors including rice, beef and pork.
Yet both leaders are keen for a deal - Obama because TPP is central to his "pivot" of military, diplomatic and economic resources to Asia and Abe because he has touted the trade deal as a key element of reforms needed to generate economic growth.
Japan's Yomiuri newspaper reported over the weekend that the two sides had in fact reached a "basic agreement" in last week's talks, but that Tokyo wanted to avoid announcing it for fear of hurting the ruling party's prospects in a Sunday by-election for a seat in parliament's lower house.
Obama faces opposition from a wary Congress and farm good exporters worried that Washington will settle for "TPP-Lite".
Commenting on the Yomiuri report, the Japanese official said both sides had offered significant compromises, with the United States dropping insistence on scrapping all tariffs and Tokyo offering bolder market access improvements than previously.
But he said no deal would be reached until all elements were in place.
"Nobody is dreaming that we have concluded everything," he said.
"All professional trade negotiators know that unless everything is agreed, everything is open," he said, adding stakeholders in both countries had to be brought on board.
Among the issues yet to be thrashed out are the period of time over which tariffs will be reduced and what sort of steps Japan can take to soften the blow on farmers.
"There are a lot of uncertainties we need to resolve, either technically or politically," the Japanese official said.
Both sides expressed optimism that progress on a U.S.-Japan deal will breathe momentum into the push for a regional pact covering 40 percent of the world economy and creating a rule-based framework that could entice Asian giant China to join.
The Japanese official echoed that view but said there was no timetable set for when exhausted U.S. and Japanese negotiators would meet, nor could he predict when a long-delayed broader deal would be reached.
"That part is not in sight right now," he said.
(Additional reporting by Krista Hughes in Washington; Editing by Kim Coghill)