Japanese Prime Minister in U.S. to Address Global Terrorism and Economic Issues

During his meeting with President Bush, the Prime Minister will discuss the measures that Japan has adopted to help the U.S. deal with the menace of international terrorism. First and foremost, he will emphasize the intention of the Japanese people to stand side-by-side with the U.S. and other democratic peoples in the struggle to combat this global threat.

Before the trip to the U.S. on September 21, 2001 the Government of Japan (GOJ) under Prime Minister Koizumi`s leadership concluded recent measures that have been adopted to maximize the prospects for long-term growth and recovery within Japan. This includes initiatives by the Bank of Japan (BOJ) to promote international financial liquidity as well as initiatives to promote regulatory reform and the disposal of non-performing loans, a stronger social safety net, and urgent measures to accelerate structural reform.

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Japan's Intention to Combat Global Terrorism

To express its solidarity with U.S. efforts to combat global terrorism, the Japanese government has made a decision to remove the legal impediments that have prevented Japan from contributing more than the support it has provided in the past. Japan has committed itself to actively engage in this struggle, which it regards as Japan's own security issue. Japan strongly supports the United States, one of its closest friends and allies, and reaffirms it intention to act in concert with the United States and other countries around the world. Specific measures include:

• The Government of Japan (GOJ) will promptly take measures necessary for dispatching the Japanese Self-Defense Force (SDF) to provide support, including medical services, transportation and supplies, to the U.S. forces and others taking measures related to the terrorist attacks, which have been recognized as a threat to international peace and security by United Nations Security Council resolution 1368.
  
  
• The GOJ will take prompt measures to strengthen the protection of facilities and areas used by U.S. forces and other important facilities in Japan.
  
  
• The GOJ will swiftly dispatch SDF vessels to gather information and intelligence.
  
  
• The GOJ will strengthen international cooperation, including information sharing in areas such as immigration control.
  
  
• The GOJ will extend humanitarian, economic and other necessary assistance to affected countries. This includes emergency economic assistance to Pakistan and India, which are co-operating with the United States in this emergency situation.
  
  
• The GOJ will provide assistance to displaced people and refugees. This will include the possibility of humanitarian assistance by the SDF.
  
  
• The GOJ, in cooperation with other countries, will take appropriate measures to avoid confusion and promote confidence in international and domestic financial and economic systems.
  
  

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Japanâs Intention to Accelerate Economic Growth and Reform

To help restore confidence and to maximize the prospects for long-term growth and recovery within Japan and the global economy, efforts are being made to expand and accelerate a comprehensive range of restructuring and reform initiatives. The BOJ is also moving to join other central banks to increase the global liquidity needed to facilitate the free flow of international trade and capital during these troubled times. Key initiatives include:

• Bank of Japan Injects Cash and Lowers Discount Rate to Maintain Global Stability

  The BOJ moved on September 12, 2001 to inject an additional Y2,000bn ($16.7bn) into Japanese money markets. This was done to help maintain sufficient liquidity, smooth fund settlement and the proper functioning of the global financial system. Additional actions include a reduction in Japanâs official discount rate from .15% to .10% and a doubling from 5 to 10 days for borrowings under Japanâs Lombard-type lending facility.

  The BOJ has also announced its determination to make every effort to prevent a continuous decline in prices and to establish a basis for stable and sustainable growth within the Japanese economy, including efforts to cope with non-performing loans.

• Japan Moves to Adopt "Advanced Program" to Expand Reform Initiatives

  Recognizing the need to take dramatic action in the face of growing economic uncertainty following the September 11 terrorist attacks, Prime Minister Junichiro Koizumi spoke before the Japanese cabinet on September 14, 2001. During this meeting he announced the acceleration of restructuring and reform initiatives within Japan through the adoption of an "Advanced-Reform Program" containing a wide range of priority targets.

  While the objective of this program will be to restore economic growth and momentum in Japan, it will exclude simple demand-increasing measures -- such as public works projects ÷ in favor of measures that will generate sustainable increases in job creation and the revitalization of private sector activities. In line with the Prime Ministerâs commitment to the reform of public corporations, no new additional outlays will be made to public corporations, with the exceptions of cases where it is absolutely unavoidable.

  Efforts are already underway to initiate facets of this program according to the reform schedule that was announced on September 21, 2001. Additional steps will be taken upon approval of the necessary legal changes and budgetary allocations during the forthcoming extraordinary Diet session that will begin on September 27, 2001. Key elements include:

Actions to Enhance Reforms of Securities Markets and Disposal of Non-Performing Loans

Securities markets will be further developed to encourage and facilitate retail and institutional investment. The problem of non-performing loans will also be given top priority with an objective of resolving this serious issue within the next three years.

Structural Reform of Securities Markets

Efforts will be made to accelerate the shift from a financial system that encourages savings to one that provides market-based incentives that reward investment. This will include the development of highly transparent financial markets, such as the improvement of clearance infrastructure that facilitates the sale and transfer of securities and other important systemic measures, including tax reform. This will help to enhance public confidence in these markets.

Enhancing Bank Inspections and the Rapid Disposal of Non-performing Loans

Japan understands that problems resulting from non-performing loans (NPL) must be resolved to effectively restore its long-term competitiveness. This issue will therefore be accorded the highest priority within Japanâs ongoing economic reform program.

A series of measures will be implemented to strengthen the rigorous inspections of financial institutions. As opposed to current policy, which requires an inspection of major banks every two years, Japanâs Financial Services Agency (FSA) will now conduct inspections every year. Follow-up reviews will also be held every six months.

When inspections reveal that a particular borrower is on the brink of bankruptcy, creditor banks will be required to have the borrower either formulate a voluntary restructuring plan, dispose of debts to RTC, or file for court protection under bankruptcy law as soon as possible. The FSA will also take steps to check banks with loans to companies whose share prices and credit ratings decline precipitously. These inspections will be conducted in cooperation with third party auditors to ensure more accurate assessments.

The responsibilities and functions Japanâs Resolution Collection Corporation (RCC), (a quasi-government purchaser of NPLs), will also be strengthened. This will help it to intensify its procurements in an effort to resolve problems relating to existing NPLs by the end of FY2002 and for new NPLs the following year.

Proposals are also being considered to allow the RCC to expand procurements beyond failed and effectively failed loans. This is being considered to allow Japanese banks to further strengthen their balance sheets.

The RCC will also use instruments such as debt/equity swaps to allow firms to write off bad debt and emerge from their troubles through the issuance of new equity. Shares obtained through debt/equity swaps will be placed into a fund established in cooperation with the Development Bank of Japan and private investors. This will help the RCC to actively help borrowersâ to regain their financial strength and operational competitiveness.

Actions to Promote Institutional and Regulatory Reform

Measures will be taken to abolish regulations that discourage competition and innovation. Special attention will be devoted to developing economic structures that enhance activity in information technology and consumer-oriented and social services including medical services, welfare and childcare, human resources, education, the environment and urban renewal.

Information Technology

• Promoting the use of under-utilized fiberoptic networks
• Facilitating the installation of fiberoptic cable in multi-unit housing
• Preparing legistaration for establishment of rules of responsibility for Internet service provides and others

• Lifting ban on corporate management of nursing and childcare and other facilities.
• Promoting private sector participation in management of childcare facilities and diversification of childcare services.

• Accelerating revisions of Worker Dispatch Law.
• Fundamental easing of regulations pertaining to employment agencies.
• Deregulation of temporary job-placement system to facilitate transfers between companies.

• Deregulation of higher education to allow more flexible establishment and reform of universitiy administration.
• Developing new types of elementary and junior high schools.

• Establishing measures for soil detoxification in urban and rural areas.

• Enhancing disclosure of real estate-related information.
• Promoting the sale and transfer of second-hand housing.
• Facilitating the rebuilding of multi-unit housing.

Actions to Strengthen Social Safety Nets for Employees and Small and Medium Businesses

With unemployment rising over 5%, the situation in Japanese labor markets is becoming increasingly severe. Efforts will be made to create new job opportunities and stronger social safety nets. Attention will also be dedicated to improving the job placement function, training and capacity building for displaced and white-collar workers, extending unemployment benefits and training options, and the establishment of public-sector employment.

In addition, support will be provided to encourage the creation of small and medium businesses and to promote innovation within these enterprises. This will help to minimize the potential for chain-reaction bankruptcies and to enhance the competitiveness of these firms.

Actions to Enact Urgent Measures to Accelerate Structural Reform

The process of structural reform in Japan will be accelerated through measures designed to empower the consumer, promote human resource development and allow individuals and businesses to reach their full potential.

• Initiatives will be implemented to realize the promises of electronic government.
• Development of information infrastructure in schools, including LAN systems.
• Eliminate waiting list for nursery schools, through 150,000 new openings by FY2004, as well as 15,000 after-school childcare facilities by the same year.
• Urgent improvement of waste disposal facilities to allow control of dioxin and other toxic emissions.
• Promote innovation and the creation of new industries within local economies through enhanced research and development and facilitated interactions and technology transfer between industry, universities and the government.
• Initiatives to encourage private investment in urban revitalization, real estate development and the improvement of public facilities.

• Japan Announces Priority Reform Schedule

  A key government economic panel chaired by Prime Minister Koizumi announced the adoption of a priority reform schedule on September 21, 2001. The schedule adopted by the Council on Economic and Fiscal Policy promises to implement a wide range of priorities included within the Advanced-Reform Program highlighted above within the current fiscal year. Key items have already been authorized with the remainder to be submitted for approval within the upcoming extraordinary Diet session that will commence on September 27, 2001.
  
  

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Japanâs Desire to Strengthen U.S.-Japan Partnership for Growth

The objective of this partnership is to promote sustainable growth in both countries as well as the world through a structure that allows cooperation and engagement on a range of bilateral, regional and global economic and trade issues. Specific concerns include macroeconomic policies, structural and regulatory reform, financial and corporate restructuring, foreign direct investment, and the development of open trade and financial markets.

While several of the initial meetings of this forum have been unavoidably delayed due to the unsettling events of this past month, it is expected to move forward soon with the agenda and meetings encompassed under this initiative. This will contribute to a further strengthening of Japan-U.S. cooperation to effectively handle the serious problems facing our economies.

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