The following is an edited version of the speech that MITI Minister Kaoru Yosano delivered at the Council on Foreign Relations on January 11, 1999 in New York:

Thank you. As the Minister responsible for Japan's international trade policy and economic structural reform in the Obuchi Cabinet, I would like to discuss two issues today. The first is our efforts to revitalize the Japanese economy, with particular attention to structural reform on the supply side, and the second, our efforts to enhance Japan's global economic policy grounded in stronger Japan-US relations.

But let me begin with a few words on the current political situation in Japan.

The Liberal Democratic Party and the Liberal Party will officially announce a coalition cabinet in a few days. I believe that this coalition is a step in the right direction for Japanese politics in two respects.

First, it will allow faster and clearer decision-making on economic and security policy. The Japanese polity needs strong governance. Last fall an enormous amount of time was spent and a great cost paid in consultations on financial problems with the Democratic Party of Japan - Japan's largest opposition party. It is now apparent that we have important differences with the DPJ on the US-Japan Defense Guidelines.

Given the major defeat the LDP suffered in the Upper House election last summer, the new conservative coalition is both necessary and natural. We will not have a majority in the Upper House even with this coalition, but it should be quite possible to work with the Komei and other parties on individual policies. Looking ahead, this experience will be valuable preparation for the kind of coalition government we will need between conservatives and centrists.

Second, the new coalition will promote political realignment in a form easily understood by the Japanese people.

There have been a number of coalition governments since the LDP broke up in 1993 - among them the one formed by the LDP, the Social Democratic Party, and Sakigake. (With the Sakigake I served as Minister of Education and Deputy Chief Cabinet Secretary.) Yet while we agreed on most issues, there were irreconcilable differences on such issues as tax reform and the need for US military presence in Okinawa.

It is essential that we offer the people of Japan a clear political philosophy for the 21st century.

That said, let me go back to the question of revitalizing the Japanese economy.

I see the 1990s as a time for restructuring the economic system that served us so well since the war until the 80s and for modernizing it to promote economic development in the 21st century.

The US led the way in economic restructuring, from the 80s and into the early 90s, while Europe has been pushing ahead with similar moves in the process of economic integration, including the launching of the euro this year.

The situation in which the Japanese economy finds itself is not unique to Japan. It is a stage in the worldwide process of adapting to global changes. Asian and Latin American moves to overcome their current economic difficulties can also be interpreted as laying the groundwork for a new era.

We are determined to bring speed and flexibility to this task.

The severity of the situation for Japan is all too clear. The need to restructure the economic system is compounded by world-wide financial uncertainty, growing deflationary pressures, serious problems in Asia, and a massive loss of confidence on the part of Japanese consumers and businesses.

Nonetheless, the Obuchi administration has pushed forward with three specific measures in the five months since taking office: facilitating bad-loan work-outs, responding to the credit crunch at home and in Asia, and creating effective demand though expansionary fiscal measures.

For the bad loans, a ´60 trillion public-fund credit line was established, making large-scale capital injections possible and launching substantive action for the writing-off of bad loans. In the days ahead, it will also be vital to deal with the real estate problems that lie behind the bad-loan morass.

I am an advocate of expansionary fiscal policy, for I see it as a means of avoiding a hard landing for the Japanese economy and for meeting our responsibilities to the world economy, particularly to the rest of Asia. It will also be a way of sustaining the Japanese economy while promoting the structural reforms needed to solve our problems fundamentally, even though in the short run this will inevitably be accompanied by deflationary side-effects.

The largest-ever package of emergency economic measures was drafted recently with a total price tag of well over ´27 trillion, including tax cuts, and fiscal expenditures whose net value is put at over ´10 trillion.

Drafted with the first priority on economic stimulation, the initial budget for fiscal 1999 calls for a 5.3% increase in general expendituresÑthe largest increase in two decades.

The next step will be the fundamental restructuring of the economic system.

First, Japan needs to overhaul the supply side of its economy and to accelerate efforts toward greater economic efficiency to improve our prospects for long-term economic growth. We need to reform the economic and social systems as they affect business. We need to promote market competition. And we need to facilitate greater mobility of personnel, capital, technology, and other management resources.

Examples include reforming the pension system to allow for a larger degree of labor mobility and developing consolidated accounting and taxation systems to allow greater flexibility for corporate reorganization.

On the tax side, from April 1st this year, corporate tax rates will be reduced to 40 percent, about the same level as in the other major nations and preparations are underway for consolidated taxation starting in fiscal 2001.

Second, the creation of job opportunities in new industries is crucial for JapanÕs economic future. The new industrial sectors are not yet strong enough to revitalize the Japanese economy, but they are nonetheless important for the future.

Deregulation is a key factor in redressing this situation.

Major progress has already been achieved in a variety of areas. We abolished the Large-scale Retail Stores Law, eliminated the government approval of telecommunications rates, and removed the supply and demand mechanisms under the Petroleum Industry Law.

Despite the financial difficulties in Japan, the Big Bang is moving forward steadily and on schedule.

We will further develop an environment conducive to the creation of new industries in a wide range of areas, among them medical care, social welfare, telecommunications, distribution, logistics, biotechnology, alternative energies, and energy conservation.

I would like to emphasize that these reforms are not intended only to improve the business environment for Japanese companies. Foreign firms will benefit equally. Toys ÒRÓ Us, the Gap, and other US retailers have moved into Japan in recent years with great success, transforming JapanÕs distribution system in the process.

We do not want to attract foreign direct investment only in the distribution sector but also across the board. We want to make our financial sector - and our economy overall - more efficient.

Japan is actively seeking foreign participation.

MITI will be reorganized into the Ministry of International Trade, Industry, and Economy as early as 2001 as part of administrative reform under way. This will be far more than a single name change because over the next several years the ministryÕs principal role will be to design various systems needed to facilitate restructuring.

We expect to take an active role in deregulation, human resources empowerment, the development of financial safety nets, and reform of corporate laws. We expect to participate in macroeconomic policy formulation more vigorously than ever.

Allow me next to turn to JapanÕs global economic policy.

I believe that Japan-US relations are central to JapanÕs international economic relations. They are more than bilateral. They encompass cooperation for economic growth in Asia and the rest of the worldÑcooperation based on our common faith in democracy and market mechanisms and on our strong security ties.

Despite this, I wonder if the level of communication between our complex societies is really adequate.

Last year, amidst the economic difficulties in Asia and Japan, many on each side of the Pacific expressed dissatisfaction with each otherÕs policy responses. If we are to work hand in hand in the global economy, we must make every effort to improve understanding of our respective situations and perspectives.

For a start, I would like to propose that economic policy officials meet regularly for fuller, more straightforward discussion of bilateral, Asian issues, and global. The leading Japanese and US economic ministries need to strengthen their ties to go beyond the traditional pattern of confrontation over bilateral trade issues.

The channels of communication between Japanese and US business should be strengthened.

As you know, between the US and the EU the Trans-Atlantic Business Dialogue is developing into an effective forum for advancing mutual understanding. Many CEOs and government ministers are involved in the TABD, and it is a valuable forum for fruitful policy debate.

Many Japanese business people are calling for a similar forum for the US and Japan. I would support efforts to create such a forum. I believe that we need a mechanism whereby Japanese and US business people can draw up bilateral and multilateral agenda that are in their mutual interests and that should be reflected in both governments' policy considerations. Such efforts should lead to more constructive intergovernmental dialogue.

I say this because, as has been pointed out many times, focusing on narrow bilateral economic issues tends to result in sub-optimal outcomes. It is vital that we develop a framework within which a broad range of economic issues can be addressed from long-term perspectives. Such a framework should reinforce awareness of the breadth and depth of Japan-US economic relations and should lead to a stronger co-operative relationship in the years to come. We also need to be more creative in identifying and treating potential sources of friction before they distort the relationship.

I would like to cite a few issues which could be addressed in such a forum.

Since being appointed MITI Minister last July, I have visited Asia four times and looked at the Asian economic situation in some depth. I have been struck by the need for strong trust and cooperation between Japan and the US to help the Asian countries overcome their difficulties, get back on track economically, and restore political stability. We also need to do what we can to ensure peace and stability in this region, fraught as it is with potential conflicts and instability.

People sometimes ask whether Japan or the US will play a leadership role in Asia. They also ask if the US sees Japan or China as its key Asian partner. However, such questions are irrelevant in light of the essence of US-Japan relations.

Underlying our cooperation, it is vital that we develop a common understanding of the Asian economies. Once this is achieved, we must then pursue cooperative possibilities, as exemplified by the recent Japan-US Joint Asian Growth and Recovery Initiative.

Like the US, Japan has responded vigorously to the Asian economic crisis by committing substantial financial resources on an emergency basis as balance of payments support. Now, with the worst part of the financial crisis over, we are shifting our focus to the real economy. Specifically, we will facilitate trade and industrial financing, concentrating our assistance on reforms to help promote Asian industrial restructuring and capacity building. Our new efforts include developing human resources, upgrading technology, and fostering a broad base of supporting industries.

Neither the US nor Japan can do the job alone. Japan-US cooperation on these structural issues is essential if the Asian countries are to overcome their difficulties and become once again a source of dynamic growth for the world economy.

We must also to work together within the APEC framework.

With the Asian economies on the ropes, we need to go back to the basics and to reaffirm APEC's importance as a vehicle facilitating the voluntary process of economic reform through peer pressure.

There are a number of other issues where we should join forces to lead multilateral discussion. It is particularly important to build momentum for the next negotiations in the WTO, with the decision to launch them at the WTO Ministerial meeting in the US this December.

We share a common position on a number of other multilateral issues. On the global environment, for example, we both favor balanced environmental protection and economic development. The possibilities for concrete bilateral cooperation are nearly limitless.

To conclude -

In response to the global currency crisis, the year 1998 witnessed vigorous discussion on the pros and cons of introducing measures to complement market mechanisms for greater international financial stability.

Neither market nor government is infallible. Balancing free market and government regulation is an eternal theme for economic policy. It is a question that requires flexible judgment that responds to prevailing economic specifics.

Amidst deflationary pressure caused by the financial crisis, 1999 must be seen as a year of pro-growth policy. The Japanese government will play its part and throw its full weight behind efforts to restructure its domestic economic systems. I hope you will invite me back again next year to report on our progress.

Thank you.