Thank you for your kind introduction.
The theme I have been assigned today is "The Political and Economic Situation in Japan". I would like to talk about the issues facing Japan in this era of intense global competition, and initiatives of Nippon Keidanren, including urging political action, to create a vital economy and society.
I would like to begin by giving you my impression of the current economic condition. Some people believe that the Japanese economy has already slid back into a recessionary phase, but I believe that we are on the road to recovery.
Exports remain as before at a high level, and domestic demand is firm. The main component of domestic demand, which is personal consumption, has been boosted by improved employment conditions and consumer confidence. Capital investment is also showing a healthy increase, supported by higher corporate revenues.
However, conditions do not permit us to be blindly optimistic about the future.
Skyrocketing crude oil prices are a cause of grave concern. High crude oil prices have a direct impact on household budgets through higher gasoline and kerosene prices. Also, if they result in a slowing down of the US or Chinese economies, which are currently the engines of the world economy, they could also affect Japanese exports. It is said that current crude oil prices are primarily the result of speculation. When I consider the massive impact that these prices have on the world economy, I can't help but be deeply concerned about recent speculative trends, and sincerely hope that prices will settle down as soon as possible.
Although Japan's economy is recovering, there are several elements in the world economy that remain unclear, which makes the foundation for the Japanese economy less than rock-solid.
Nippon Keidanren is involved in a variety of policies and issues aimed at promoting stable growth and realizing a vital economy and society in Japan. Today, I would like to focus on four issues in particular.
The first is the reform of our social security system.
Until now, each element of the system - pensions, medical care, and nursing care - has been reformed separately. Recently, however, the squeeze on benefits and the increased burden of payments have required repeated spur-of-the-moment adjustments. These successive reforms have made the Japanese people anxious about the continued viability of the system and leave them wondering just how much more they will be required to pay. The primary baby boomers will begin entering their late old age of 75 and older in around 2020, at which time every 1.5 working person should support one elderly person in Japan. This is an example of an aged society unmatched anywhere else in the world. Before that time comes, we must reform the entire social security system as a single unit that includes pensions, medical care, nursing care and other elements, and integrate the reform of the unit with the reform of the Japanese tax and financial systems. If we can reconstruct a social security system which is easy to understand and sustainable, we can ameliorate people's dissatisfaction and anxiety and give them renewed peace of mind.
To that end, Nippon Keidanren issued a new policy proposal on September 21. The gist of this proposal is comprised of the following three points. First, to sustain economic vitality, the latent national burden ratio must be kept below 50%, now and in the future. Second, to establish a common basis for the reform of our social security system, we must introduce social security numbers for individuals and keep individualized accounts. Third, we must rationalize each social security benefit paid out.
To realize these goals, Nippon Keidanren is working with various commissions and councils that have been established by the Japanese government.
The second point is promoting technological innovation and strengthening the partnership between industry, academia and governmental agencies. Because Japan is a resource-poor country, technological innovation is essential for sustained economic growth. Currently, various policies are being pursued by both the public and private sectors to establish Japan as an advanced science and technology oriented nation. In this connection the strengthening of ties between universities, which are the birthplace of new knowledge, and the industrial sector, which applies and commercializes that knowledge, is especially crucial to bolster Japan's international competitiveness.
For the past several years, Nippon Keidanren has worked actively with related governmental agencies, universities and research institutions through such means as holding Academic-Business-Government Coalition Promotion Conference that promote interaction among industry, academia and government. In a world of increasingly diversified and advanced research and development, it is important for each side to recognize the role played by the others and to take responsibility for promoting stronger ties, with universities and research institutes conducting basic research and basic technological development from a mid-term, governmental perspective, and industry pursuing process innovation and product innovation that anticipates consumer needs. I feel confident that if each sector undertakes reforms while giving free rein to their ideas, we can generate dynamic diversity and boost Japan's overall R&D strength.
The third point is strengthening economic partnership with East Asia and promoting free trade.
As economic activity rapidly globalizes, it is essential for companies in all countries to have a systemic foundation that permits them to freely and smoothly engage in economic activities, including trade and investment, that transcend national borders. In view of this, Japan is working to strengthen such international trading systems as the World Trade Organization (WTO), while aiming toward concluding high-level, comprehensive free trade agreements (FTA) with countries and regions that are important for Japan.
In addition to an FTA already signed with Singapore, agreement has been reached on the main outlines of an FTA with Mexico, which will come into effect next year. We should also regard East Asia as priority region, and we should put up efforts to conclude FTAs with countries in the region, which are geographically close to Japan, have close economic ties to us, and are expected to experience further growth.
Earlier this month, I visited the Philippines, Malaysia, Thailand, and Indonesia, where I talked with leaders of the political and financial sectors and and exchanged opinions concerning concrete steps that might be taken to conclude FTAs between those countries and Japan. In negotiating FTAs with these countries, we face difficult problems relating to trade in agricultural and fishery products, as well as to the movement of people. Despite this, I believe that forward-looking efforts should be made to promote domestic structural reforms including agricultural restructuring so that we can conclude agreements that benefit all concerned.
Another important issue that affects the realization of a free trade area in East Asia is the improvement of a business climate in China, which has emerged as a major economic player in the region.
Almost three years have passed since China was admitted to the WTO. The Chinese government is continuing its efforts to rigorously uphold WTO commitments. The business community in Japan applauds these efforts and hopes that they will be both continued and accelerated in the future.
The fourth point concerns our response to global warming, which is today the most important global problem facing humankind. Corporations are being called upon to take responsibility for and make contributions to countermeasures. In response, Nippon Keidanren instituted the "Voluntary Action Plan on the Environment" in 1997 that now has over 50 participating industrial organizations who are actively working to reduce their CO2 gas emissions. However, because CO2 emissions have increased in the residential and transportation sectors, it will be extremely difficult for the Japanese government to fulfill the pledge it made in the Kyoto Protocol to reduce total greenhouse gas emissions to a level 6% below fiscal 1990 levels within the time frame of 2008 to 2012.
On November 5, Russian President Vladimir Putin signed his country's ratification of the Kyoto Protocol, which means that the Protocol will go into effect in February 2005. Within this context, some people in the Japanese government are proposing measures that could seriously hurt corporate activity, such as an environmental tax or domestic emissions trading. Japanese industry is strongly opposed to measures of this kind.
While it is of course important to achieve the targets set by the Kyoto Protocol, it is necessary to strengthen efforts to reduce greenhouse gas emissions on a global scale. Next year, debate will begin in earnest on the international framework to be adopted after the Kyoto Protocol, that is from 2013 on. I believe that major countries such as the United States, China and India must be active participants in any new framework that is devised.
I am absolutely convinced that greenhouse gas emissions can be reduced without sacrificing economic growth. To that end, we must mobilize all the knowledge and experience of the industrial and academic sectors, including technological innovation and dissemination, and technology transfer to developing countries. It is my hope that we can strengthen the partnership and cooperation between the business communities of Japan and the US and mount initiatives aimed at addressing the issue of climate change.
To realize the policy issues I have mentioned, it is necessary for people in the political and economic circles to work together. Therefore, Nippon Keidanren actively submit policy recommendations to politicians, and is now calling on its member companies to voluntarily step up their political contributions as part of their social responsibility to encourage the formulation and promotion of policy proposals on the part of political parties.
The international environment surrounding Japan has changed drastically in the last ten years. In the midst of economic globalization, the laws and systems adopted by a given nation have even more impact than before on whether that nation's economy prospers or founders. To strengthen their international competitiveness, corporations are seriously engaged in managerial reforms and R&D, but to reap the rewards of those efforts, they must have laws and systems in place that will support corporate activity.
In this respect it is the political sphere that is responsible for reform. In nations under parliamentary democracy such as Japan, political parties have an important role to play and they are called upon to formulate and implement policies with enough speed to accommodate the rapid changes occurring in the world economy.
To financially support the establishment of the political infrastructure needed to improve political parties' ability to make and implement policies, Nippon Keidanren has established "10 Priority Policies" that can be considered important in realizing an economy and society led by the private sector. Based on these policies, we have evaluated the policies of the political parties, their implementation efforts, and their results, and have encouraged our member companies to make voluntary donations to political parties, using these evaluations as a yardstick.
Japan is moving toward a two-party system comprised of the Liberal Democratic Party and the Democratic Party of Japan. As policy debates are expected to become even more lively in the future, we hope that our political donations will help to realize party-based politics that is policy-oriented.
We are now entering the second half of our two-day conference. Through this gathering of business representatives of the U.S. and Japanese business communities, and through our frank exchange of opinions, it is my sincere hope that we can find solutions to various difficult issues we face. With that sentiment, I will end my presentation.
Thank you for your kind attention.