Japan Identifies New Policy Challenges to Sustain its
Economic Progress


NEW YORK -- (BUSINESS WIRE) -- December 1, 2003

The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting changing business and investor sentiment toward Japan. It can be viewed at: http://www.jetro.go.jp/usa/newyork/focusnewsletter/focus30.html. A summary is posted below:

Japan's GDP grew 0.6% -- an annualized rate of 2.2% in July-September -- the seventh consecutive quarterly increase. This advance was primarily driven by the private sector -- rather than government spending or export growth as in the past. Manufacturing companies in particular increased plant & equipment purchases by 28.4% on a year-over-year basis. Small and medium firms increased plant & equipment purchases by 17.3% over the same time frame.

Japan moved in 1996 to introduce a new policy infrastructure to overcome the inefficiencies that had been constraining its economic growth. Recent improvements can be seen to be the result of these efforts. With much of the initial framework in place, policymakers have now moved on to identifying new challenges to ensure effective implementation."

Japanese corporations still rely heavily on commercial bank financing. As a result, Japan's Ministry of Economy, Trade and Industry (METI) is moving to provide Japanese firms with access to a diversified range of financing and risk management tools.

Policymakers are also moving to strengthen Japan's social safety net, while facilitating the entry of entry-level employees, and individuals seeking reemployment in the workforce.

Japan's Resolution and Collection Corporation was established in 1998 to purchase the debt of bankrupt and sound financial institutions. Recent data reveals the RCC has purchased over $87 billion in troubled loans.

The Industrial Revitalization Corporation of Japan (IRCJ) was also founded last May to purchase debt from banks and other creditors and to establish and implement viable restructuring plans. Six cases have been announced as of the end of September.

Notable recent restructurings include the reorganization of five major steel corporations and the creation of Renesas Technology, a merger to rationalize semiconductor production by Hitachi and Mitsubishi Electric. Unison Capital, Marubeni and Bandai have also moved to revitalize Tohato, a troubled confectionary firm. Similar deals include Victoria, a sporting goods company by JAFCO, Fukusuke, an apparel company by MKS Partners and Takarabune Corporation, a food company by Tokio Marine Capital.

The Japanese government has introduced new tax policies to facilitate industrial revitalization, entrepreneurship and a more competitive business environment. These include reducing Japan's corporate tax rate in FY1998 and FY1999 from 37.5 to 30%, and introducing a consolidated tax system in FY2002.

In FY2003 large-scale policy-driven tax cuts totaled approximately $1.6 billion. Measures include tax exemptions of 10-12% on R&D expenses and 10% on IT investment, along with a 50% special depreciation for R&D facilities and other qualifying assets.

Business closures in Japan exceeded the number of business start-ups from 1999-2001. While this is an improvement from the previous 1996-1999 period, Japanese leaders have come to recognize the important relationship between entrepreneurship and national economic growth.

As a result, the Japanese government is moving to double the number of new businesses established from 180,000 to 360,000 annually. Japan is also seeking to establish 1,000 new university-based startups by FY2004. To achieve these objectives, Japan is now developing policy to facilitate the ability of potential entrepreneurs to realize their vision.

To familiarize Japanese people with the realities of entrepreneurship, METI and other government organizations have organized Venture Fairs, Start-up Seminars and other training, assistance and reward programs.

Despite recent improvements, stronger demand is vital to maintain improving domestic growth, as well as to reduce Japan's dependence on exports and to sustain the economic recovery that now appears to be underway. Addressing the new challenges and directions outlined above will help to restore consumer confidence and spending as well as to strengthen increasing investor interest to help Japan realize these important goals.

Data and statistics have been compiled by JETRO from publicly-released media accounts. JETRO does not guarantee their accuracy, and any such information should be checked by the reader before they are used to make any business or investment decision.

Contact: Satoshi Miyamoto
Executive Director, JETRO NY
Tel: 212-997-0416
Fax: 212-997-0464
E-mail: Satoshi_Miyamoto@jetro.go.jp.