- Corporate Governance
- Regional Economic Revitalization
- Visit to Imabari Shipbuilding Co., Ltd.
- Rising Long-term Interest Rates
- The Exchange Rate
- Defense Spending
- Japan-China Relations
- Legislating the Use of One's Former Surname and Choice of Separate Surnames for Married Couples
- Rice Vouchers
Corporate Governance
At the meeting of Keidanren chairs and vice chairs today, we mulled and put together a position paper on approaches to corporate governance toward sustainable growth. This is a declaration of our resolve to steer policy toward proactive investments in growth. Based on the essence of corporate governance that acting to achieve sustainable growth and boost one's company's worth over the medium and longer term, Keidanren has organized its thoughts on the challenges companies, shareholders, and investors are facing and the roles they must play.
Ten years have passed since the establishment of Japan's Corporate Governance Code, and Japan's corporations have shown major strides with reforms in corporate governance. However, it has been pointed out that corporate governance still lacks substance while the formative structure of governance itself has solidified. Also, it has been noted that returns on investment are overly biased toward shareholders and have not led to real growth driven by corresponding benefits for corporate employees and clientele.
To achieve real gains in their corporate worth over the medium and longer term, companies will need to free themselves from a mindset that has bound them to a nearsighted quest for improvements in capital efficiency, make a decisive shift toward growth-oriented investments in areas such as infrastructure, R&D, human capital, and new business ventures, and actively pursue them.. Moreover, in my view, if companies appropriately share the value-added generated by their business activities with their employees, consumers, business clientele, regional society, and investors, I believe they will achieve a favorable cycle of investment-driven growth that leads to the creation of additional value-added.
To that end, corporate managers will be expected to clarify their basic policies and ordering of priorities regarding capital allocations and carefully explain these details to their company's shareholders and investors. Additionally, it is crucial that shareholders and investors fully understand and demonstrate utmost respect for corporate management's policies and show a willingness to engage in constructive dialogue as co-creators in the drive to create corporate value. The purpose of reforms in governance is focused not on ensuring compliance with norms simply, but rather on fostering the establishment of corporate conduct that will support sustainable growth. It is desired that companies, investors, and the government fulfill their respective roles and pursue realistic reforms.
The position paper we drew up today calls on corporate managers to transform their mindsets, actively encourage investments in their firms, and engage in disclosure to investors. Additionally, it makes proposals regarding the roles of asset owners, asset managers, proxy advisory firms, and institutions that share ESG data and conduct appraisals, as well as codes and legal frameworks that support the activities of these market players. Looking ahead, we plan to lobby the government and the ruling parties on these proposals.
(In response to a question regarding the point that companies have not allocated enough of their profits for investments in medium- and long-term growth despite a certain measure of success achieved with reforms in their corporate governance) We view this as a matter that reflects the stances companies take regarding their management, as well as their corporate initiative and autonomy. Amid the deflationary trends that took root over the past 30 years, many companies pursued cost-cutting measures and resorted to downsizing-driven managerial strategies aimed at maximizing their capital efficiency over the short term. In addition, they prioritized sustained employment over wage growth. These strategies led to a mindset oriented toward short-term stock price formation, which they now regret.
For many companies, retained earnings have extremely important significance as a buffer against risk in times of uncertainty. It is vital to pursue balanced allocations of one's business resources with a multi-stakeholder awareness, and that should also apply to the allocation of retained earnings. However, within the context of total balance, I think many companies have been focused more on accumulating their retained earnings over these past few decades.
(In response to a question regarding the reasons why many companies demonstrated no more than a formalistic response to the trend in corporate governance reform over the past 10 years) With the penetration of styles of management driven by an emphasis on full disclosure and attention to capital efficiency, I believe many companies adopted a formalized response that included bringing in more outside directors and curbing their cross-shareholdings. While it should be credited that companies have enhanced the returns for their shareholders, I think many corporate executives followed this formalistic approach out of an awareness of short-term stock price trends.
Regional Economic Revitalization
(In response to a question regarding expectations toward the policy package to promote the formation of regional industrial clusters Prime Minister Takaichi outlined to compile by May 2026, and concerns surrounding regional revitalization) While based on autonomous plans established at the regional level, Prime Minister Takaichi's "Strategy for the Future of Regions" is aimed at having the central government play a leading role and provide strategic assistance for the formation of regional industrial clusters and fostering the growth of local industries. As such, I applaud it.
Various regional economic forums held to date have developed their discussions on topics including the sustained growth of regional industries, the digital transformation (DX), the green transformation (GX), and the cultivation of human resources. Within the context of regional revitalization, including the formation of industrial clusters, regional collaboration will be an important perspective. Keidanren has advocated a "new doshu territorial concept" as its idea for flexible regional collaboration that extends beyond the prefectural level.
Population decline and other issues have stoked a strong sense of crisis among business organizations at the regional level, prompting them to draw up their own visions for regional economic development through collaboration with local governments, universities, and various other stakeholders. These initiatives serve as catalysts for regional economic development in regional collaboration. Keidanren wants to place its support behind the independent visions of each region.
I understand that the formation of industrial clusters called for in the government's Strategy for the Future of Regions will also extend across prefectural boundaries. It is crucial that the independent visions pushed by each region, the regional collaboration framework established by the government in September this year, and the Strategy for the Future of Regions unveiled by the Takaichi administration all move forward in alignment, forming a single, large vector.
Keidanren, for its part, will take steps to boost public recognition of its "new doshu territorial concept" and encourage its acceptance society-wide while always basing its awareness on the ideals and actions behind the policies put forward by the government.
Visit to Imabari Shipbuilding Co., Ltd.
(In response to a request regarding impressions from the December 4 visit to Imabari Shipbuilding's Saijo Shipyard) Japan depends on maritime transport for over 99% of its trade volume. On our visit, I gained a renewed sense of the extreme importance that the maritime industry and its maritime transport and shipbuilding operations bear for Japan's citizens in their lives day-to-day, for our economic activities, and for national security.
During our tour, I was struck by the sheer scale of the fabrication process and reminded of the vital importance of strengthening the international competitiveness of Japan's shipbuilding industry from various angles, including the digital transformation of its shipbuilding processes and the training of skilled labor. Although Japan currently accounts for a significantly dwindling share of the global shipbuilding industry, from the standpoint of national security, it is extremely important that it continues to be engaged in domestic shipbuilding operations.
Given that understanding and the current urgency of reinforcing the manufacturing infrastructure of Japan's shipbuilding industry, the recently introduced supplementary budget bill holds promise, as it incorporates provisions for the creation of a fund aimed at financing the restoration of the domestic shipbuilding industry and calls for the implementation of public-private investments totaling 1 trillion yen in scale over the coming decade.
Rising Long-term Interest Rates
(In response to a request seeking the Chairman's take on the rise—to 1.97% at one point—in the yield on the newly issued 10-year Japanese government bond, approaching the 2% level ) This trend will be something to closely watch going forward, as the 2% level arguably marks a certain inflection point.
I think the climb in long-term interest rates is affected by fiscal management and market speculation over US and Japanese monetary policies. Prime Minister Takaichi has also repeatedly stressed the importance of market confidence, and my hope is that her administration will take action to restore this nation's medium- and long-term fiscal health, thus ensuring fiscal sustainability and maintaining the markets' confidence in Japan. Additionally, I want the administration to continually strive to release comments and explanations that have the markets in mind.
In any case, I am hopeful the Bank of Japan will continue to apply timely and appropriate monetary policies aimed at achieving its sustained and stable 2% inflation target, although price trends, including those due to the exchange rate, as well as the outlook for wage increases during the upcoming labor-management wage negotiations next spring, will be influencing factors.
The Exchange Rate
(In response to a request for the Chairman's thoughts on the current exchange rate level and the potential for market intervention amid the softening trend in the yen) The exchange rate should intrinsically reflect economic fundamentals, and abrupt swings are not desirable, but realistically, it is difficult if not impossible to avert short-term movements attributable to speculative trading. In the event of such abrupt, short-term swings, I believe the government will appropriately decide whether it should intervene in the forex market while ascertaining future rate trends.
A variety of factors influence moves in the exchange rate. Because it can reflect occasional economic events both domestic and foreign, it is difficult to determine whether the then-prevailing rate level is appropriate. That said, excessive swings are not welcome. And as a trend, a continued weakening in the yen must be averted. To correct the yen's current softening trend, it will be key to secure sustainable finances that help maintain market confidence in Japan, and additionally, to strengthen the nation's economic fundamentals, that is, to bolster its medium- and long-term growth potential. I believe the steps being taken now, namely the promotion of investments in growth industries through public-private coordination as well as efforts in labor reform, will help strengthen Japan's growth potential.
Defense Spending
(In response to a question regarding the shape of defense spending by Japan in light of the current uptrend in defense-related outlays worldwide) Japan faces an increasingly complex and difficult security environment, and we accordingly want the government to form decisions on defense spending that are ideal in terms of the national interest. Decisions regarding defense spending should fundamentally be made not in response to demands from foreign governments for spending hikes, but autonomously and with attention to the national interest, including the security environment and the availability of fiscal resources.
To defend our nation and make contributions to regional peace and security, it will be crucial to maintain and strengthen its infrastructure for defense-related production and technologies. To that end, perspectives that improve the predictability of business for companies in the defense industry will be extremely important, and formulating appropriate budgets for long-term procurements of military equipment will be key to the assurance of that predictability.
Regarding the budget resources for increases in Japan's defense capability, relevant frameworks for raising corporation taxes, income taxes, and tobacco taxes were finalized under the tax reform outline for fiscal 2023. Starting with the fiscal year from April 2026, the corporation tax will include a special corporate surtax for defense spending. Additionally, it's my understanding the LDP Research Commission on the Tax System is now engaged in specific deliberations regarding a corresponding increase in the income tax.
Japan-China Relations
(In response to a question regarding the impact on business with China following the recent deterioration in Japan-China ties and the significance of the upcoming visit to China by a joint delegation of Keidanren and the Japan-China Economic Association, scheduled for January) As this is a matter that could lead to a decrease in people-to-people exchange, including tourism, I am concerned about the various impacts it is having on business with China. To prevent these impacts from worsening, fostering mutual understanding through dialogue between the governments of both nations will be key. Additionally, private companies will continually need to calmly assess the situation and act accordingly.
In the economic and business world as well, it's important to seek mutual understanding through dialogue, and in that sense, I believe the upcoming visit to China by the joint delegation from Keidanren and the Japan-China Economic Association has value. Excluding the COVID-19 pandemic, that delegation has established a record of making visits to China even during periods marked by shaky bilateral ties, and as such, it has been a major asset to both nations. I strongly hope this latest delegation will be making its visit to China as planned.
(In response to a question regarding whether Chairman Tsutsui has heard back from Wu Jianghao, the Chinese Ambassador to Japan, regarding the importance of the delegation's upcoming visit to China in January, as discussed during their recent meeting) I have not heard back from him, specifically.
Legislating the Use of One's Former Surname and Choice of Separate Surnames for Married Couples
(In response to a question as to whether there will be any change in Keidanren's support for a choice of separate surnames for married couples, given news reports that the government has agreed in principle to codify the use of one's former surname) Keidanren has not changed its position regarding the choice of separate surnames for married couples. We will follow developments in this debate going forward.
As I don't yet have all the specifics, I can't comment on the news that use of one's former surname will be codified into law. However, I welcome it as an indication the government is exploring initiatives that will contribute to eliminating the burdens and disadvantages in all dimensions of social life, associated with changing one's surname, for promoting women's empowerment.
Rice Vouchers
(In response to a request for the Chairman's thoughts on the "rice vouchers" the government is advising local municipalities to hand out as food purchase assistance under its economic relief package) Forming a conclusive opinion about rice vouchers is not easy, given that they will have both pluses and minuses in terms of their usefulness to consumers, the administrative costs, and the benefits for businesses.
In the effort to ensure food security, establishing an environment for stable food purchases by citizens on a daily basis is a fundamental pillar of agricultural policy. In that context, it will be important to pursue balanced initiatives that aim for stable rice supplies and price levels while weighing a variety of factors, including considerations for producers and consumers and challenges related to administrative work. I want the government to explore how rice vouchers will fit into this effort, conduct a PDCA cycle, and tackle the key issues surrounding the formulation of countermeasures against future inflation and climbing rice prices.