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Monday February 18 3:21 AM ET

Bush in Verbal Japan Deflation-Devaluation Debacle

TOKYO (Reuters) - President Bush's wayward way with words sent financial markets wobbling Monday when he mixed up deflation and devaluation.

Traders couldn't believe their ears when Bush relayed to a news conference that Prime Minister Junichiro Koizumi, outlining his plans to revive Japan's economy, had placed equal emphasis in their talks on banks' non-performing loans, ``the devaluation issue'' and regulatory reform.

The yen's value is an extremely touchy subject for Japan's Asian neighbors and U.S. manufacturers, who suspect that Tokyo is willing to tolerate a cheaper currency as a way of spurring exports and stoking a little bit of inflation.

Most traders doubted Koizumi would have publicly mused about devaluation and assumed that Bush, famous for gaffes such as a pledge to ``put food on your family,'' had meant to say ``the deflation issue.''

But some dealers decided not to take the risk and briefly pushed the yen down to 132.80 per dollar from 132.55.

White House officials quickly clarified that Bush and Koizumi had indeed discussed deflation and the official transcript of the news conference also set the record straight in a footnote.

Like his president-father before him, Bush is well-known for slips of the tongue and mangled syntax.

He recently left a hostage to fortune on the budget front by declaring to voters: ``Not over my dead body will they raise your taxes.''

Trade has been a particular pitfall for the president.

``I'm a free-trader. I will work to end terrors -- tariffs and barriers -- everywhere, across the world,'' he said in 2000 while campaigning for the presidency.

``More and more of our imports come from overseas,'' he said another time.

And Bush is not the first U.S. president to put his foot in his mouth on the question of currencies.

At the June 1987 summit of the Group of Seven industrial nations in Venice, President Ronald Reagan sent markets into a frenzy when he said the dollar should remain stable but that ``it could be within reason that there could still be some lowering of the value in relation to other currencies.''

The White House quickly issued a clarification to say that Reagan, like Bush Monday, had tripped over his tongue and in fact wanted a stable dollar.