The 43rd Japan-U.S. Business Conference
Speech by Chairman Fujio Mitarai, Nippon Keidanren

The Political and Economic Situation in Japan


Sunday, November 12, 2006
2:45-3:00 p.m.
The Imperial Hotel, Tokyo

Introduction

Thank you for your kind introduction. I am Fujio Mitarai, Chairman of Keidanren. Today I've been asked to speak on the topic of "the Political and Economic Situation in Japan." I would like to talk about the current state of Japan's economy as it continues along the path to recovery, tasks for revitalizing the economy further and building Japan into an attractive "country of hope," and the importance of further strengthening and deepening the Japan-U.S. economic partnership.

State of the Japanese Economy

Having finally emerged from the long period of stagnation referred to as "the lost decade," the Japanese economy continues its steady recovery. Corporate earnings are firm, and capital investment is on the rise. Growth in personal consumption has slowed, but with the improvement in employment figures, it can be expected to regain its momentum before long. Although we will need to keep an eye on such factors as economic trends in the United States and elsewhere overseas, there is no doubt that Japan is shaking off the sense of frustration and powerlessness that hung over the society for so many years. This change can be attributed both to the advance of the Koizumi cabinet's structural reforms and the business community's management innovations.

During this time, the world economy has seen rapid progress in globalization owing to advances in information and communications technology, while the BRICs and other rising economies have been surging ahead and dramatically increasing their clout in international trade negotiations. Within Japan, meanwhile, the falling birth rate and the aging of the population threaten to create a labor shortage in the years ahead.

Faced with these circumstances, in what direction should Japan be heading?

Challenges for Japan and Hopes for the New Administration

As I am sure you know, in September this year the new Abe administration took over from the Koizumi cabinet, which had pursued structural reform over a period of five years, a long tenure for a Japanese prime minister. The business community has enthusiastically welcomed the new Abe administration.

The Liberal Democratic Party's victories in the House of Representatives by-elections held on October 22nd testify that the people support the Abe cabinet's policy of staying the course with former Prime Minister Koizumi's reforms. It also shows that the prime minister has earned the people's trust by acting on his word, as seen in his visits to China and South Korea, as well as by his quick and firm response to North Korea. In a recent opinion poll, the Abe cabinet's approval rating was high at 70 percent.

In the speech I gave on assuming the post of Nippon Keidanren Chairman last May, I offered up the goal of turning Japan into "a country of hope." By a country of hope, I mean a country that achieves sustainable growth by innovations in its social systems (not merely technological progress) so that its people can live happy and fulfilling lives; a country equipped with an adequate safety net, where the people have equal opportunity and any number of chances to succeed; and a country that is respected and admired by the rest of the world. I think that Prime Minister Abe's professed goal of making Japan "a beautiful country" is very close to my own concept of "a country of hope." I am hopeful that Prime Minister Abe's tenure will equal that of his predecessor in duration and that he will use his time in office to fulfill the goal of building Japan into a land of beauty and hope.

Innovation

I'd like to speak now about the challenges I believe Japan must undertake in order to become a country of hope and my expectations of the new administration.

The first precondition for achieving this goal of making Japan a country of hope is stable economic growth. For Japan to survive increasingly fierce international competition and continue to grow, it must constantly maintain a competitive edge through innovation. We must further enhance our international competitiveness by leveraging the strengths of this resource-poor country, such as energy-conservation and environment-related technology, and we must shift our focus to high value-added industries.

To this end, I would like the new administration to launch a visionary national project to realize the longstanding goal of making Japan a nation built on science, technology, and creativity. Using the energy and momentum from this project, I would like the government to mobilize every tool at its disposal, including tax measures, government finances, and regulatory reform, to construct a system that will sustain continuous innovation in products and services.

Social Security System

Second, if the people are to live in hope, we need to address the source of their anxieties about the future. In this context, the most important task is to solve the problems plaguing Japan's social security system. Outlays of social security benefits are rising rapidly as the society ages. If we continue in this manner, the problem of intergenerational inequity will worsen, and the burden on future generations will become excessive.

The social security system is the people's economic safety net. To ensure that it can be sustained in the future, I would like the new administration to undertake a complete revamping that strives for a balance between burden and benefits and limits the role of social security to addressing the kind of risk that individuals are unable to prepare for themselves.

Trade Liberalization (WTO, EPAs)

Third, to make Japan a country respected and admired by people around the globe, we must contribute actively to the stability and development of the world. Japan's economy has developed to this day thanks to the benefits of the free trade system established under the General Agreement on Tariffs and Trade.

We must continue to support and develop this multilateral free trade system in the years to come for the sake of the stable economic development of Japan and of the world as a whole. This has been Nippon Keidanren's consistent position ever since the GATT era. I would like the United States to fulfill its responsibility as the world's preeminent power and boldly take the initiative in reopening the suspended Doha Round of WTO negotiations. The business communities in Japan and the United States will join forces in lobbying our governments to take firm leadership in this matter.

At the same time, the role of bilateral and regional free trade agreements and economic partnership agreements (EPAs) in supplementing the multilateral free trade system has expanded dramatically in recent years. EPAs can have a positive impact on the economies of both parties to the agreement by reducing barriers to trade and investment and facilitating the flow of goods, services, personnel, capital, and information. At the same time, they can help stabilize government relations by promoting cooperation in a variety of fields.

Japan should work toward the conclusion of comprehensive and high-level plurilateral and bilateral EPAs, placing priority on the East Asian region. It is important that we build a wide network of economic partnerships in the region through such efforts, thereby contributing to the region's stability and economic development and enriching the lives of its people.

With this in mind, Nippon Keidanren last month issued a set of recommendations titled "Towards Broader and Deeper Economic Partnership Agreements," and it continues to urge the government to pursue EPAs.

Japan-U.S. Relations

The keystone of Japan's foreign policy, however, is its relationship with the United States. Thanks partly to the warm personal relationship between former Prime Minister Koizumi and President Bush, Japan-U.S. relations are stronger than ever before. I certainly hope that Prime Minister Abe will strive to be no less successful than his predecessor in building a strong relationship of mutual trust between Japan and the United States.

At the same time, we should not allow the friendly relations we enjoy today to lure us into complacency. To the contrary, we must take advantage of times like this to build and fortify systems that will support and develop this partnership into the future. The time has come to seriously consider a Japan-U.S. EPA to serve as a framework for these efforts.

I believe that an EPA between Japan and the United States, two of the world's leading industrial nations, should be a comprehensive, high-level agreement that goes beyond the basic template of a conventional EPA. It could include not only removal of tariffs but also liberalization of trade in services and of investment, smooth and safe movement of goods and people, and cooperation in the area of intellectual property rights. I am hopeful that with such and EPA we can solve pending business issues between our two countries and take economic relations to the next level. Moreover, if an agreement of this nature proves effective, it can not only serve as a model for similar agreements between other countries but exert a positive impact on multilateral negotiations as well.

Needless to say, there are many issues that would need to be tackled in connection with a Japan-U.S. EPA. However, when one considers the long-term political and economic benefits of an EPA, it seems clear that it is time for our governments to begin studying the issue in close cooperation with the business communities in both countries. I am looking forward to a deeper discussion of the benefits of such an agreement in today's Japan-U.S. EPA panel discussion.

Conclusion

I have attempted in the limited time available to provide a brief overview of the challenges and expectations Japan must meet to become a "country of hope." I hope that my talk will encourage all of you Japanese and American business leaders here today to view Japan's future with optimism and work with us to make this vision a reality. Finally, I would like to conclude by expressing my sincere hope that all of you will take advantage of this conference to engage in lively and constructive debate during the next two days.

Thank you.


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