JETRO, 1221 Avenue of the Americas, NYC, NY 10020
October 19, 2000

Japan Announces New Growth Policy to Promote Economic Rebirth

Japan's "New Growth Policy to Promote Economic Rebirth" recognizes the need to reinvigorate economic growth as well as to expand the structural and corporate reform initiatives that will allow Japan to accelerate its transition to a knowledge-based society.

To achieve these two interrelated objectives, Japan's new growth policy emphasizes the development of initiatives that seek to: a) dramatically promote an information technology (IT) revolution; b) address environmental problems and the need for improved recycling mechanisms; c) include measures to cope with the needs of an aging society; and d) improve urban infrastructure and quality of life within Japan. In addition, numerous additional measures are being introduced to promote Japan's industrial revitalization and rebirth.

The Japan External Trade Organization (JETRO) provides the following information examining these developments in greater detail.

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Toward the Need for a New Growth Policy for Japan's Economic Rebirth

Complicated by the onset of the Asian financial crisis in July of 1997, the Japanese government sought to maintain a social consensus in favor of reform through several supplemental budget packages that were designed to stimulate consumer and corporate demand as well as to provide a helping hand to Japan's troubled Asian neighbors.

Many analysts believe the Japanese economy hit bottom in the spring of last year, and that it is now beginning to enjoy a gradual economic recovery. This is demonstrated in economic data which shows a rise in GDP growth from -2.0% in FY1998 to an estimated 1.5% in FY2000. Private companies, especially large multinational manufacturing enterprises that compete in the export sector are increasing their competitiveness, demonstrating significant increases in their corporate profitability. Capital investment into capacity and equipment is also starting to rise. Nevertheless, consumer demand remains weak, at least in part due to the dramatic social dislocations that inevitably accompany any program of comprehensive structural reform. Unemployment remains serious and families remain concerned about their future. Faced with an additional need to address the requirements of a rapidly aging society, Japanese policymakers must sustain the critical balance required to promote strong economic growth while simultaneously initiating the dramatic changes needed to enhance Japan's long-term economic viability.

With many reforms now taking effect, and the "Action Plan for Economic Structural Reform" which was enacted in 1997 scheduled to conclude next year, Japan must move to redouble its efforts to introduce comprehensive change. Human society is now in the midst of the most dramatic period of innovation and change since the industrial revolution. To maintain its role as an economic leader during these unprecedented times, Japan must move quickly to create a business environment that will reward the entrepreneurship, creativity, technological innovation and individual achievement that is essential to effectively transition to a knowledge-based society.

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The Rationale Behind Japan's New Growth Policy for Economic Rebirth

Additionally, utilizing public money infusions to troubled banks and insurance companies to resolve the "credit crunch" that prevented many sound companies from obtaining funding lest these financial institutions fall below minimum BIS reserve standards, Japan has been able to successfully resolve more than $550 billion in non-performing loans. Japan must now, however, maintain this dedication and move quickly to deal with the bad loans and other troubled assets that remain. While incidents such as the recent bankruptcy of the Sogo Department Store chain have proved troubling, they signify that Japan is making real progress in implementing the often painful changes needed to restructure and reorganize its economy. Further improvements in bankruptcy legislation; strengthened inspection and supervision procedures; and, early correction methods and public money infusions to deal with financial institutions that cannot meet BIS standards are all critical to establishing a more efficient financial system as well as to restructure the corporate sector.

Furthermore, when Japan began to formulate the initiatives envisioned in the Plan for Economic Structural Reform of 1996 and subsequent Action Plan in 1997, the internet, e-commerce and other related innovations had only just begun to impact the global economy. As many reforms now take effect, rapid developments require further changes to ensure that Japan can successfully adapt and develop a business climate in which both domestic and foreign companies can compete in the global information-oriented economy emerging before us. To facilitate this transition, Industrial Rebirth and IT Councils, composed of representatives from both the public and private sectors, were formed last summer. Recommendations prepared by these groups are reflected in Japan's new economic package, calling for further efforts to review corporate-related legal systems; create flexibility in Japan's labor market; and to promote an environment that encourages creativity and technological innovation.

Finally, during the days when Japanese financial institution began to bear the full weight of the Asian financial crisis, a special guarantee system was enacted to ensure that sound small and medium scale enterprises could obtain the funding needed to finance their business operations. Steps will now be taken to abolish this system by the end of the current fiscal year.

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The Contents of Japan's New Growth Policy for Economic Rebirth

However, the Japanese government recognizes the critical need to address an expanding fiscal debt that now exceeds 120% of Japan's gross domestic product. This requires greater efficiencies and reductions in government spending. Therefore, Japan's current program contains a total allocation of approximately $102 billion in total and $36 billion in current real spending. In comparison, the third supplemental budget approved in November of 1998 totaled approximately $171 and $62 billion, marking a decrease of close to 39% and 40% respectively (percentages calculated on a yen basis).

To enhance short-term growth as well as the need to expand and accelerate the reform efforts that have already begun to dramatically change Japan's economic and social structure and direction, Japan's New Growth Policy of Economic Rebirth seeks to focus on the implementation of policy initiatives in five areas. These include:

Measures to dramatically promote Japan's IT revolution

Japan will move to provide the systems, facilities, environment and business processes that will serve as a foundation from which to create an "e-Japan". This will include the implementation of initiatives that facilitate R&D, the use of IT within small and medium businesses, and greater skills development and labor flexibility within Japan's workforce. Specific examples include:

• Review regulations governing telecommunications and broadcasting to enhance competition and promote low cost, high speed network service
• New legislation to enhance consumer privacy protection;
• Making NTT's optical fiber network open to other firms;
• Enhancing R&D to facilitate development of ultra-high-speed internet;
• Maximizing efficiencies through electronic filings of government documents and promoting other paperless applications; and
• Revision of Japanese commercial code to allow shareholder meetings over the internet.

Measures to cope with environmental problems

The impact of global warming as well as the need to preserve the natural environment and minimize the effect of potentially scarce commodities all necessitate greater attention to the development of alternative energies, as well as the development of more efficient recycling and waste disposal methods.

Measures to cope with the needs of an aging society

Japan currently possesses one of the most rapidly aging societies in the world. This has profound implications in terms of pension funding and liabilities, as well as labor practices and the general quality of life of its population. To ensure that Japan can adequately sustain the high standards that allow its citizens to maintain a life filled with enjoyment and vitality, it must move quickly to embrace the changes required to improve the returns it receives on its retirement savings, as well as to expand and advance geriatric care and other pressing requirements.

Measures to promote urban revitalization and renewal

As in many other economies, many large Japanese cities, have in recent years, suffered in comparison with outlying areas and suburbs, aggravating a "hollowing out" of urban centers. This places a great strain on municipal governments, who must deal with increased demands on their physical infrastructure within the framework of a smaller corporate base and population. Japan's new growth policy seeks to promote the rebuilding of urban areas as centers for regional interaction and growth, supporting more diverse activities by local citizens and employees, including the development of new business activities by both domestic and foreign firms.

Measures to promote industrial rebirth

To enhance the dynamism of corporate management, Japan's commercial law system will be revised and other measures introduced to promote Japan's industrial rebirth. This will facilitate the ability of managers to introduce efficiencies and to reorganize their business operations. Specific examples include:

• Expanded use of stock options to promote business reinvention and the creation of venture companies;
• Enhance labor mobility and review labor employment policy with a focus on human resource development;
• Issuance of "electronic" commercial paper to provide more flexible financing tools; and
• Revise educational curriculums within universities to enhance opportunities for researchers to transfer among institutions and to maximize creativity and technological innovation.
  

Focus: Economic Reform
Focus: Okinawa Summit
Focus: Small Business Development
Focus: New Enterprise Development
Focus: Industrial Revitalization
Focus: Economic Recovery 4
Focus: Steel
Focus: Economic Recovery 3
Focus: Economic Recovery 2
Focus: Economic Recovery