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Executives' Comments  Speech by Chairman Chairman Sakakibara's speech at the U.S. Chamber of Commerce

Date: 10:00-11:00, Monday, June 29th, 2015
Place: U.S. Chamber of Commerce
[Slide 1]

Thank you, Ms. Overby, for your kind introduction.
Ladies and gentlemen, my name is Sakakibara, and I am the Chairman of Keidanren, the Japan Business Federation. I am honored to address such a large audience at the U.S. Chamber of Commerce, which is the largest business association in the United States. Your organization not only influences the economic affairs at home in the U.S. but also impacts the global economy. I extend my heartfelt gratitude for your invitation to speak here today.

I was appointed Chairman of Keidanren in June last year. Keidanren was founded in 1946. It is a comprehensive economic organization with a membership of about 1,300 large corporations and 110 nationwide industrial associations in Japan.

[Slide 2]

First, a bit of background about myself. I am with a company called Toray Industries, which is known as the world-largest carbon fiber manufacturer. I have been Chairman of Toray Industries until recently and now Chief Advisory Officer of the company.

In 1970's, I worked for Toray's New York Office for 4 years. That office was small with 10 some staff and was the only entity of the company that existed in the U.S. at that time.

Japanese firm in those days had always looked up to America in all aspects including economy, science, technology, culture etc.

So coming to the U.S. to build operational bases had been "a dream" to a Japanese firm like ourselves. It was also "my dream" to build Toray's plants in the U.S.

So, I have devoted almost all my entire career with Toray to expanding overseas business of the company.

Now, the company is doing businesses in 25 countries worldwide and, here in the United States, we have 12 companies, all manufacturing operations, in 12 states.

Through my experiences in the U.S., I have come to believe that the U.S.-Japan relationship is the most important bilateral relation for Japan, both politically and economically. Since being appointed Chairman of Keidanren, I have wanted to dispatch economic mission to America as soon as possible to contribute to the positive development of the U.S.-Japan relationship.

And now my wish has finally come true, and I am very pleased that I could bring a delegation of Japan's leading multinational corporations to the United States.

[Slide 3]

The notable feature of our mission this time is its focus on federal and state level visits. To be more specific, one hundred CEOs of major Japanese corporations have been divided into three groups and will visit a total of ten states starting from today.

Group A, which is my team, will start with Washington D.C. and then visit Maryland, Virginia and South Carolina. Group B will visit Texas, Tennessee and California. And group C will head out to Illinois, Indiana, Ohio and New Jersey.

In each of these states, we will meet with the senators, house representatives, state governors to express our gratitude for accepting Japanese firms into the local communities for so long and for supporting their business activities.

We also want to hold lively discussions with them to deepen and share the understandings of the current status of Japan's economy and ways to strengthen U.S.-Japan relations even further.

Through this trip, we want to make the economic ties between the two countries even stronger, and to that end we have also decided to establish a Keidanren satellite office in Washington D.C. in view of the importance of U.S.-Japan economic relations.

Since today's theme is the "Revival of Japan's economy and the U.S.-Japan relationship," first let me present a brief outline of the current status of the Japanese economy.

Two and a half years have passed since the formation of the Abe administration in December 2012. Prior to this, Japan was on the verge of a crisis, with a general economic downturn and falling stock prices, and there were no clues on how to rid Japan of deflation.

[Slide 4]

This slide shows Japan's nominal GDP from 1994 through 2014. As you can see, Japan's GDP has not grown at all over the past twenty years but has actually contracted. It means that for twenty years, Japan's economy was burdened with deflation and experienced no economic growth.

This is why we often refer to this period as the "lost two decades." It may be difficult for our dear colleagues in America to imagine such a situation, since you have never experienced a period of such long-lasting deflation.

[Slide 5]

This slide shows the nominal GDP of various countries. Over the past twenty years, the size of the U.S. economy grew by 3 times, Republic of Korea by 5 times, and China by a stunning 17 times, while the Japanese economy grew by less than 1 time, being totally left behind in terms of global economic growth.

But as a result of the Abe administration's determined pursuit of economic and fiscal policies, now called "Abenomics," economic indicators have started to pick up and uplift the business sentiment and people's mindset.

I strongly believe that the Japanese economy has been pulled back from the brink of disaster, opening the way for its revitalization.

[Slide 6]

Ladies and gentlemen, as you know, Abenomics consists of the "three arrows" of bold monetary policy, flexible fiscal policy, and a growth strategy encouraging private-sector investment. By pressing ahead with these strategies, Japan aims to achieve a mid- to long-term real GDP growth rate exceeding 2% and a nominal rate of over 3%.

The striking feature of Abenomics is that it places the elimination of deflation as a top priority issue. Deflation is a fatal disease that undermines people's lives, corporate activities and every aspect of economic activities. Japan has suffered from this disease far too long.

So it stands to reason that Abenomics' first arrow is aimed at dispelling the deflationary mindset through a bold monetary policy. The Bank of Japan has undertaken bolder than ever quantitative and qualitative monetary easing since April 2013, and took additional monetary easing measures in October last year.

As a result, the excessive appreciation of the yen from 2008 to 2012 came to an end, and the current level is deemed to reflect more or less adequately the economic fundamentals of the nation.

For the second arrow, the Abe administration has precisely executed a flexible fiscal policy to eliminate deflation and revitalize the economy.

It launched an emergency economic package worth 10 trillion yen (90 billion USD) right after the formation of the administration and tried to aggressively boost the economy through demand creation.

In addition, it compiled another economic package worth 5 trillion yen to deal with the downside economic risk, when the consumption tax was raised to 8% last April,

[Slide 7]

To revitalize Japan's economy, the third arrow, or growth strategy, is of primary importance. The Japanese government unveiled its "Japan Revitalization Strategy" in June 2013. The strategy sets out three action plans for executing and achieving the roadmap to growth: Industrial Revitalization Plan; Strategic Market Creation Plan; and Strategy of Global Outreach.

Each plan presents "targets" (KPIs) that should be achieved for each set of major policies.

[Slide 8]

This "Japan Revitalization Strategy" is an evolving growth strategy. It was first revised in June 2014, presenting many solutions to issues that involve big political decisions. For example, in terms of corporate tax reform, the effective corporate tax rate will be reduced from the current 36% to the twenty percent range in several years' time.

Also in areas such as labor, medical care and agriculture, progress has been made. Especially Women's Participation has been greatly advanced in past two years. I will touch on this later.

[Slide 9]

The second revision will be announced soon. I expect it to further improve Japan's business environment and include measures to encourage innovation in frontier fields such as big data, IoT, and artificial intelligence.

As part of such efforts, the Japanese government has placed INVEST JAPAN initiative as a spearhead to reform the existing system and improve the business environment.

I hope all of you gathered here today will pay greater attention to the changes that Japan is making to become a more attractive country to do business, and will consider making direct investments to Japan.

[Slide 10]

Thanks to Abenomics, encouraging signs have already emerged in the Japanese economy. Looking at the GDP statistics, although the Japanese economy slumped in the first half of the year 2014, affected by the consumption tax increase in April, it started improving soon afterwards, fueled by monetary easing, the low oil price, and a rise in real wages, and the end of deflation is now in sight.

The real GDP in the first quarter of 2015 grew 3.9% on an annualized basis, demonstrating positive growth for two consecutive quarters.

[Slide 11]

Corporate earnings are also performing well, and many firms have achieved record-high profits.

As a result, the sum of ordinary income of all industries increased by about 10% from the previous year and is expected to exceed 65 trillion yen.

This rise has triggered a significant stock rally, with the total market capitalization of the Tokyo Stock Exchange surpassing 600 trillion yen, which is approximately 5 trillion in dollar basis, just shy of the 611 trillion yen peak recorded at the end of 1989.

[Slide 12]

The employment situation is also steadily improving. The unemployment rate has been lowered to 3.3% in April 2015.

[Slide 13]

Also to encourage more foreign tourists, the Japanese government has eased visa requirements and revised the consumption tax exemption program.

Thanks to these measures, the number of foreign tourists visiting Japan increased by five million in two years from 2012 and exceeded 13 million in 2014.

The remaining task is to ensure the sustainability of the virtuous economic cycle. Over this past twenty years, most Japanese firms have adopted a defensive stance in their management. But Abenomics has changed this direction. The deep-rooted deflationary mindset has been dug out and a better business environment is being put in place.

Firms can now actively embrace risk, rise to the challenge of aggressive capital investment and technology development to expand their business, and lead the world in creating new growth opportunities.

Keidanren is fully committed to supporting these initiatives undertaken by the Abe administration to revitalize the Japanese economy.

[Slide 14]

Focusing on the revitalization of the Japanese economy, Keidanren recently published its own Vision of Japan in the year 2030. The title of the Vision is "Toward the Creation of a More Affluent and Vibrant Japan." A summary of this vision has been distributed to you, so please take a look at it later.

As part of our vision, we want to make Japan a nation where the younger generation takes pride, exercises their can-do spirit, and carves out a future full of hope, and a nation worthy of trust and respect by the world.

[Slide 15]

The keys to realizing such a nation are "innovation" and "globalization." By "innovation" I mean two things. The first is "technological innovation," where firms boldly take on R&D to create new growth opportunities. This is an important lifeline for resource-poor Japan to enhance its international competitiveness, and at the same time, it is the biggest engine of economic growth.

The other meaning of "innovation" is the "innovation of society and social system." It means breaking away from conventional wisdom and challenging broad-based reforms across the entire spectrum of our lives — be it social, political or economic. By realizing such innovation, we can draw out the potential vitality of Japan to its fullest.

[Slide 16]

Japan has thus far developed various core industries through technological innovation, beginning with the textile industry in the early 20th century and extending to the shipbuilding, steel, electronics, machinery and automobile industries. For Japan to continue growing sustainably in the future, we need to nurture new core industries that can lead the new era.

As candidates for Japan's new core industries, Keidanren is focusing on six areas as shown here in this slide.

One notable example is that Japanese firms are now trying to lay the foundation of a new industrial revolution that combines IoT and robots. Through such innovation efforts, together with other areas, we expect to create a new market worth 100 trillion yen by the year 2030.

[Slide 17]

"Promote the participation of women in the workforce" plays an essential part in innovating our current society.

Last September, the Japanese government and Keidanren jointly held the "World Assembly for Women in Tokyo" by inviting Prime Minister Abe and First Lady and the American ambassador to Japan, Ms. Caroline Kennedy.

In the symposium I pointed out that "empowerment of women is a key growth strategy for the country. And at the same time, it is also a management strategy for companies to survive intensive global competition." I said this because I strongly felt that diversity was a key to innovation.

[Slide 18]

Keidanren has urged its member firms to formulate voluntary action plans on the promotion of women, and more than 440 companies, or one-third of the entire membership, have already come up with ambitious plans. I will continue to lead the movement to encourage greater workforce participation by women.

[Slide 19]

Along with innovation, another key to Japan's revival is "globalization." Today, the corporate value chain has expanded globally, and the business environment needs revision to allow quick and smooth cross-border flows of human resources, goods, money and technology.

We need to urgently develop comprehensive high-level rules on international trade and investment.

[Slide 20]

Now, broader regional economic partnerships are attracting more attention. So now the era of the "Mega FTA" has arrived, with four mega FTAs — TPP, Japan-EU EPA, RCEP (Regional Comprehensive Economic Partnership for East Asia), and TTIP (Transatlantic Trade and Investment Partnership) — being negotiated today at the same time.

Japan aims to establish FTAAP, Free Trade Area of the Asia Pacific, by the year 2020 with TPP and RCEP placed at its core.

[Slide 21]

Needless to say, there is no doubt that the early and successful U.S.-Japan conclusion of the TPP will make the two countries' economic ties much stronger and deeper, and without it we cannot support sustainable growth in the Asia-Pacific region, which is a powerful driver of global growth.

In addition to economic growth, TPP has another important aspect, as Prime Minister Abe stated in his speech at a Joint Meeting of the U.S. Congress in April.

As shown in this slide, he said and I quote "we can spread our shared values around the world and have them take root: the rule of law, democracy, and freedom. That is exactly what the TPP is all about."

We totally agree with him, and Keidanren welcomes that President Obama and Prime Minister Abe reconfirmed their commitment to the early and successful conclusion of the TPP in their joint vision statement in April.

The key to concluding the TPP negotiations is the agreement between the U.S. and Japan. We believe that U.S.-Japan negotiations are now in their final stage, and since the TPA bill will soon be signed by President Obama, it will certainly speed up the negotiation process, hopefully.

We look forward to seeing the strong political leadership of the two countries. Keidanren will continue to support the negotiations representing the private-sector economy.

[Slide 22]

Now, let's look at the current status of the U.S.-Japan economic relationship. The United States is the No. 1 direct investor in Japan. It accounts for thirty percent of total FDI in Japan.

[Slide 23]

And with a total volume of trade worth about 280 billion U.S. dollars, it is the second largest trade partner for Japan.

[Slide 24]

Looking at Japan from the U.S. side, direct investment from Japan to the U.S. is generally expanding and Japan was the No.1 direct investor in 2013 and No.2 in 2014. As for trade, Japan is the fourth largest trade partner after Canada, China and Mexico.

[Slide 25]

Let's look at the output and the job creation effect of Japanese companies in the U.S.

Now, about 3,000 Japanese firms operate in the U.S., with the output of 330 billion dollars and with nine hundred thousand direct employment. Those figures go up to 580 billion dollars of output and 1.7 million jobs, if the direct and the indirect effects are combined.

[Slide 26]

The output volume of 580 billion U.S. dollars surpasses the GDP of Sweden, Poland, Argentina, and so on.

[Slide 27]

Furthermore, Japanese firms in the U.S. also make a positive contribution to the expansion of U.S. exports.

The export volume of the Japanese companies accounts for 4.4% of total exports of the United States. This is No.1, followed by UK and Germany.

[Slide 28]

Looking at the automobile sector, which is the biggest category in investment in the United States, Japanese carmakers started investing in the U.S. from the 1980s and today, 70% of Japanese cars sold in the U.S. are manufactured in North America. They employ 400 thousand workers directly and 1.36 million including indirect employment. They purchase 57 billion dollars of U.S. made auto parts.

You can understand that Japanese firms have taken root all over America, contributing to economic growth and job creation as a Good Corporate Citizen.

At the same time, please allow me to use this opportunity to thank American companies again for making investments to Japan. Over 1,100 American companies operate in Japan today, and Keidanren is working closely and jointly with the American Chamber of Commerce in Japan (ACCJ) to support their business activities.

[Slide 29]

But in the past, there were also times of friction between our two countries. Young people today may not know, but from the 1970s through the end of the 1980s, a string of U.S.-Japan trade frictions arose over products like textiles, steels, color TVs, automobiles and semiconductors due to the rapid expansion of exports from Japan to the U.S.

To resolve these trade frictions, the governments of the two countries held a number of trade negotiations over these products and also on the Structural Impediments Initiative.

In parallel to these government talks, many Japanese firms decided to shift their production sites to the U.S. to avoid further friction.

[Slide 30]

The U.S.-Japan economic relationship has shifted from a time of friction to a period of coexistence and co-prosperity, with many Japanese firms entering the U.S. market and becoming increasingly globalized.

Now the U.S.-Japan relationship will advance to a new stage of more strengthened partnership through the TPP.

[Slide 31]

Now, let me introduce the carbon fiber business of Toray. Carbon fiber is 10 times stronger than steel but weighs only a quarter of steel. Such high strength and light weight make it ideal for a wide range of applications, such as a structural material of aircrafts and cars. By using carbon fiber, vehicles can save weight and improve their fuel efficiency significantly.

Toray now has production sites in six countries in the world. In the U.S., it operates plants in Washington and Alabama, and construction of a new plant is now underway in South Carolina.

Working for Toray's New York office in 1970's, I frequently travelled to Seattle to visit Boeing's headquarters to advance joint research projects.

And in 1975, Boeing decided to use our carbon fiber as a secondary structural material for its 737 aircrafts. Joint research between the two companies has continued after this, and when I was president of Toray in 2006, Toray and Boeing concluded a long-term supply contract for all structural materials for the Boeing 787, an aircraft known as the Dreamliner.

The carbon fiber business has grown into Toray's core operation today, but if we look back, we spent about 40 years just doing research and development, and during these years, our total R&D expenditure exceeded 1.4 billion U.S. dollars.

In fact, our carbon fiber business remained in the red in these period. But the top management strongly believed that carbon fiber would be an indispensable fundamental material of the twenty-first century. Toray researchers also dreamed of "flying a black aircraft made of Toray's carbon fiber all around the world." By the way, "Black" didn't mean something "sinister," but literally black, the color of graphite, which is the main component of carbon fiber.

Three key factors lie behind the success of Toray's carbon fiber business: (1) the strong commitment of top management, (2) the passions of research people, and (3) the spiritual culture of the Japanese stock market that allows firms to tackle long-term development projects involving innovative technologies, even if it is loss-making for some period. We feel lucky that in Japan, shareholders tend to take a long-term view.

But Toray's dream to fly a "black" aircraft made of carbon fiber could never have been realized without the cooperation of America, especially the cooperation of Boeing.

With deep gratitude to the United States in mind, we will continue to work on expanding our U.S. operations even further.

[Slide 32]

America is the most important partner for Japan, both in terms of politics and economy.

I think it was very meaningful that the joint vision statement released at the U.S.-Japan Summit last April pointed out that the two countries are "steadfast allies that work together to advance common interests and universal values in Asia and globally".

[Slide 33]

In the address to the Joint Meeting of the U.S. Congress, Prime Minister Abe proposed to call the U.S.-Japan Alliance, "an Alliance of Hope."

To pass a bright future onto the next generations, the U.S. and Japan must avoid slipping into complacency.

As leaders in the Asia Pacific, we must step up our efforts to make our relationship even stronger. For our two nations to endure as an "alliance of hope," it is imperative that we continue to make efforts at all levels of society, including politics, economy and culture.

During his last visit to the U.S. Mr. Abe succeeded in deepening the bond existing between the two nations, especially in the area of politics and regional security. And now it's our turn, the business community.

[Slide 34]

Ladies and Gentleman, I would now like to conclude my speech. The U.S.-Japan relationship is the most important bilateral relation for Japan, both politically and economically. The two countries share the same fundamental values of freedom, democracy, basic human rights, and respect for the market economy, and are bonded to each other through mutual trust and deep friendship.

Through our mission this time, I strongly hope to reconfirm the significance of our economic relationship, and deepen and expand the economic ties between the two countries.

If everyone participating in this meeting today understands and shares my hope, I could never be happier.

Thank you very much for your kind attention.

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