welcome to "newsline." i'm keiko kitagawa in tokyo. u.s. president barack obama says he's optimistic democrats and republicans can reach a deal to steer clear of the so-called fiscal cliff, but he's got a backup plan if they can't. obama wrapped up a meeting at the white house with congressional leaders. they're trying to find a way to head off automatic tax increases and spending cuts that take effect in the new year which economists warned could trigger a recession. >> we're now at the point where in just four days, every american's tax rates are scheduled to go up by law. every american's paycheck will

get considerably smaller. and that would be the wrong thing to do for our economy, it would be bad for middle class families, and it would be bad for businesses that depend on family spending. fortunately, congress can prevent it from happening if they act right now. i just had a good and constructive discussion here at the white house with senate and house leadership about how to prevent this tax hike on the middle class. and i'm optimistic we may still be able to reach an agreement that can pass both houses in time. >> the president obama says if time runs out, he will urge democratic senators to put forward a basic package for a vote. obama has been pushing republicans to limit tax breaks to people making less than $250,000 a year. he also at one point raised the threshold to $400,000. but the republicans want the hikes to apply to people who

make an annual income of $1 million or more. obama also wants to extend unemployment insurance to 2 million americans. some analysts believe the challenge of t-- the chance of deal is slim. they say the economic impact will be worse the longer uncertainty persists. >> reporter: we think it is highly unlikely, more in a two in three chance that we will go past january 1st date with no agreement on the fiscal cliff. the failure of congress to act before the fiscal cliff deadline has disrupted financial markets and raised uncertainty, and that heightened uncertainty in the near term will depress economic growth further, primarily through lower household spending and business investment. already household attitudes have deteriorated sharply in response to the fiscal cliff worries, and we think this will lead to a sharp slowdown in economic

activity in the first quarter as fiscal negotiations continue into 2013. beyond that, the economic outlook for 2013 will depend greatly on how long it takes congress to resolve some of the major policy issues. the longer that indecision and uncertainty in congress drags on, the more it will damage economic growth. at the moment, we're still hopeful for a rebound in the second half of the year as some of these policies become more clear and business investment rebounds. >> iranian leaders are flexing their ministry muscles on one the world's key shipping routes for oil and gas. naval personnel have begun six days of exercises on the strait of hormuth. commanders say they're using ships, submarines and surveillance drones. they say crews will test fire on

missiles. they say one drone will show how much iranians can defend themselves against other nations. and though they oppose iran's nuclear program, they have some in the gulf. a chinese foreign ministry official says japan and china should settle their territorial dispute over the sanguku islands over dialogue. >> translator: china and japan have their own claims and different positions. but we should search for an appropriate method for settling the issue through dialogue. >> the foreign minister spoke at a forum in beijing on friday.

chen stressed that china will never compromise in its territorial claim. he said china would not cause any trouble but would never cease exercising its own rights. he hinted that china will continue sending surveillance ships around the sanguku islands. china apparently wants japan to recognize existence of the territorial dispute by both hard and soft means, but japan claims the islands are an integral part of its territory and is adamant there is no dispute. china is building up its military presence in the asia pacific region. the question now is how south asian regions will deal with its neighbor's growing clout. they are responding by stationing marines on the islands in the hopes of boosting their presence in the south china sea. >> vietnam and malaysia claim

soverei sovereigncy over all. their company has started to deploy marines on nine islands since october. the country had already stationed naval officers there. the military says personal numbers have almost doubled on some of the islands. before the deployment, the lead marines underwent training on protecting the islands. they have been equipped with upgraded weapons. the phillipines have also began expanding its military facility on the island of lawa to complement equipment and drills and other operations. the company's developing oil and natural gas in nearby waters. china is also increasing military presence in the south china sea to boost its claim to maritime interests in the area.

the phillipines deployment is intended to solidify its defense of the islands and shores. nhk world, manila. china's imports and exports are growing at a rate other countries can only envy. still the minister on foreign trade says growth is slowing. he says it's probably fallen far short of its government's target this year. chen dumen says he thinks imports and exports have grown around 6%. government leaders were hoping for 10. exports fell sharply because of the credit crisis in europe. trade with japan declined last month in territorial dispute harmed relations. they said there is a limit in economic growth they can expect by depending on exports. they say they'll try to keep the growth growing by boosting demand inside the country. south korea says its military

has retrieved from under the sea what appears to be debris from the engine of the north korean rocket launched two weeks ago. they claim the rocket was carrying a satellite, but many countries believe the launch was a test of long-range missile technology. the object was retrieved from a depth of 88 metres in the yellow sea. a defense minister official says if it's considered to be part of the rocket's engine, it will help understand its capabilities. south korea's military has already retrieved a fuel tank and a container of oxidizer used for combustion. after analyzing the oxidizer and other debris, the ministry suspects korea is trying to integrate a bigger missile. here's a look at the three-day forecast.

thank you for joining us for this edition of "newsline." i'm keiko kitigawa in tokyo. thank you for joining us.