Report on the Current Surplus Reduction Plan

September 11, 1995

Keidanren
(Japan Federation of Economic Organizations)

The Need for a Current Surplus Reduction Plan:

Keidanren, through its resolution adopted at the General Meeting, requests that the government develop and implement a plan for reduction of the current surplus in order to:
• stabilize foreign exchange rates;
• move toward an economic structure in which internal and external demands are balanced;
• announce Japan's determination to maintain a 3% economic growth rate, to the nation and the international community.
At the same time, it is important for the private sector to continue its reform efforts, including a re-evaluation of corporate practices, such as international technology transfer and reform of business practice to promote imports.

Policy Position on the Current Surplus Reduction Plan:

1. Japan's current surplus is caused by both cyclical factors, such as economic stagnation, and by structural factors, such as chronic high savings and inadequate investment rates. It is necessary to address these problems.

2. The surplus reduction plan should be undertaken at the nation's own initiative to move to an economic structure in which internal and external demands are balanced.

3. The current surplus and resulting imbalance should be reduced through expanded equilibrium by increasing imports.

4. The current surplus reduction plan should be crafted on the macroeconomic level, and microeconomic trade targets, that could lead to managed trade, should be avoided.

5. It is essential that we promote international policy coordination, such as advocating that the US continue efforts to reduce its twin fiscal and trade deficits, at the same time as Japan works to reduce its surplus.

Concrete Steps in the Current Surplus Reduction Plan

1. For the immediate future, Japan's goals should be to reduce the ratio of the current surplus to nominal GDP to less than 2% within 3 years, and aiming for an economic growth rate of 3%.

2. The specific measures to be included in the current surplus reduction plan should be:
   • Front-loading of the Basic Plan for Public Investment;
   • Reform of the tax system, including reduction of the corporate tax burden and income tax;
   • Improvement of access to the Japanese market to increase imports;
   • Comprehensive implementation of deregulation.