The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting President Bush's visit to Japan this week.

It can be viewed at: http://www.jetro.org/newyork/focusnewsletter/focus18.html..

• Prime Minister Koizumi's Leadership Concerning the Afghanistan Problem

While firmly supporting President Bush's fight against terrorism, Prime Minister Koizumi has himself exercised strong leadership to combat this global menace. This includes assistance in the transport of ammunition and materiel, search and rescue operations, and humanitarian relief for refugees. Japan has also taken action to freeze the assets of terrorist-related organizations.

• The Japanese Economy Reaches its Most Important Postwar Structural Turning Point

The Japanese economy is now suffering from the twin problems of non-performing loans and deflationary recession. The Koizumi Cabinet has responded to this situation based on the realization that "real growth cannot be achieved without real reform."

The Limits of Japan's Postwar Economic Model

    Throughout the postwar period, Japan has made resource-allocation decisions based on government-led industrial policy. Given Japan's limited resources, this approach was suited to maximizing economies of scale by planning resource allocation, rather than leaving these decisions to market principles alone.

The Essence of Japan's Stagnation

    Considerable time and cost must now be expended to transform the system into a more mobile and liquid one. Throughout the 1990s, effective demand was propped up by fiscal and monetary policies. While such emergency measures were being implemented Japan should have taken bold and swift action to promote the reallocation of resources from low-productivity to high-productivity sectors. Consequently, Japan currently faces a very difficult situation in fiscal and monetary policy management.

• Koizumi Cabinet's Structural Reform Program

The Koizumi Cabinet is the first Japanese administration fully committed to a reform agenda. Therefore, the stage is set to eliminate vested interests and to prod Japan away from an equilibrium based on resource immobility. Tectonic shifts are definitely occurring, and while they cannot be fully appreciated on the surface, they are definitely taking place.

Progress in Systemic Reforms

Over the past five years, the Japanese government has acted as a facilitator to introduce important systemic change. This includes revising laws concerning business re-organization, regulatory reform, increased liquidity of land and labor resources, and the development of transparent accounting practices. Systemic reform has been accelerated under the Koizumi Cabinet and the government will submit a bill to the Diet next month incorporating the most comprehensive revisions to Japan's Commercial Code in 100 years.

Financial Sector Reform and Current Status of the Disposal of Non-Performing Loans

The introduction of limits on Japan's deposit guarantee system is expected this April. The disposal of non-performing loans remains the most important issue in financial sector reform. While much remains to be done, all the necessary tools are in place and the functions of the Resolution and Collection Corporation (RCC) have been strengthened and an Industrial Revitalization Fund created.

Introducing Measures to Combat Deflation

While attention is being devoted to the liquidation of assets and the disposal of non-performing loans, the problem of deflation is becoming more serious. Therefore, on February 13, Prime Minister Koizumi ordered economy-related ministries to immediately put together packages of anti-deflationary measures.

• The Fundamental Strength of the Japanese Economy

Despite Japan's problems, its fundamental economic strength must be recognized. This includes high-quality human capital and a competitive labor force; an ability to develop new technologies; industries in which Japan enjoys strong international competitiveness; assets valued at (Y)1,400 trillion; and a sophisticated market comprising more than 100 million consumers.

Growing Importance of Foreign Direct Investment

Inward foreign direct investment can play an extremely important role in bringing the Japanese economy to a recovery path. As seen during the Meiji Restoration and after the Second World War, Japan has the necessary "tolerance" for importing beneficial resources from abroad and learning from them. Therefore, Japan eagerly welcomes and invites these investments."

Focus is published and disseminated by JETRO New York, in coordination with KWR International, Inc., New York, NY 10023, Tel: 212-532-3005, Fax: 212-799-0517, E-mail: kwrintl@kwrintl.com. JETRO New York is registered as an agent of the Japan External Trade Organization, Tokyo, Japan and KWR International, Inc. is registered on behalf of JETRO New York. This material is filed with the Department of Justice where the required registration statement is available for public viewing.

For more information contact: JETRO New York
Satoshi Miyamoto, 212/997-0416, Fax: 212/997-0464
E-mail: Satoshi_Miyamoto@jetro.go.jp.