if Japan recovers so will gold ..if japan doesn't recover..gold will go to the moon?
Address to the 35th Japan-U.S. Business Conference
by Takashi Imai, Chairman,
Keidanren (the Japan Federation of Economic Organizations)
July 13, 1998
1.Introduction
Japan's environment is changing drastically, what with the nation's rapidly graying society, a falling birthrate, and
intensifying global competition. Meanwhile, the continued economic slump and the failures of major financial institutions
are making people more anxious and pessimistic about the future.
Today, I would like to discuss the tasks Japan needs to address in order to deal with this changing environment and pave
the way for a hopeful and secure twenty-first century.
2.Economic recovery
It goes without saying that our most urgent immediate task is economic recovery. Japan's real gross domestic product
registered minus 0.7 percent growth in fiscal 1997 (April 1997 to March 1998), the worst figure since World War II
and an indication of just how severe economic conditions are.
Last month, when I attended a meeting between Keidanren and the Business Roundtable, American participants strongly
urged quick action to bring about economic recovery, pointing out that the recession in Japan, whose economy is ten
times the size of South Korea's and twenty times the size of Indonesia's, is a central factor in Asia's present economic
problems.
In April, the Japanese government announced a comprehensive 16-trillion package of economic stimulus measures that
is expected to boost GDP by 2 percent annually. Since 82 percent of the funds allocated for public-works projects in
the initial fiscal 1998 budget have already been front-landed and a supplementary budget was recently passed, I believe
that the positive effects of tax cuts and public-works investment will become evident in early autumn.
In this context, I may mention that the majority of respondents to a questionnaire survey conducted by Keidanren in May
positively assessed the economic stimulus package, noting that it is the largest in history and that it can be expected to
give the economy a shot in the arm.
Meanwhile, since the basic elements underlying postwar Japan's industrial competitiveness - technology development
ability and a strong work ethic - have not changed, it is important that both companies and the public have greater
confidence in the economy. It is especially important that companies undertake forward-looking management, aware that
assertive and resolute business activities based on market principles and self-responsibility are the source of the Japanese
economy's vigor. It is also important to revive the public's propensity to consume, which has been flagging since last
year, by developing attractive products.
3.Disposal of bad loans and stabilization of the financial system
Second, to ensure a solid recovery it is crucial to stabilize the financial system, whose problems have dragged down the
economy.
This February the government arranged for a 30-trillion infusion of public funds to this end. Of this total, 17 trillion will
go toward protecting depositors in financial institutions, while 13 trillion will be earmarked for boosting those
institutions' capital-adequacy ratios, thereby heading off a credit crunch and ensuring continued provision of needed
funds to borrowers.
Furthermore, the government and the ruling Liberal Democratic Party have announced a "Comprehensive Plan for
Financial Revitalization." It is now imperative to secure passage of legislation implementing this plan during the
extraordinary session of the National Diet scheduled to convene by the end of July.
This plan attacks the problem of bad loans on several fronts. First, it includes measures to loosen the market for and
promote the effective use of collateralized real estate, such as measures to coordinate complex real estate-related rights,
the establishment of servicer compnaies to handle the management and collection of credits and enhancement of the
functions of the Cooperative Credit Purchasing Company.
Second, with the objective of facilitating the reorganization and realignment of troubled financial institutions, the Total
Plan will establish a system of Japanese-style "bridge banks" in order to protect sound borrowers in good faith. This
concept is based upon that of the American bridge bank, and has been adapted according to the Japanese civil and
commercial codes. After an institution fails, the Japanese-style bridge bank will receive whole assets of the failed bank
immediately in order to maintain loans to sound borrowers, and it will subsequently transfer the selected assets and
liabilities to other private bank, in principle, within two years.
If, under this plan, financial institutions take firm steps to dispose of bad loans and collateralized real estate and real
estate begins to move, falling land values will head north again and asset deflation will be ameliorated. Effective land use
and consequent urban invigoration will make for a stronger economic recovery.
Meanwhile, the Japanese "Big Bang" is now underway. The recently passed Financial System Reform Law aims to
create free, fair, and global financial markets by the year 2001. Beginning in April of that year, a ceiling will be placed on
funds reimbursed to depositors in failed banks. We need to stabilize financial system in time for the "Big Bang" and the
placement of the ceiling.
Internationalization of the yen is another important part of financial-system reform. Considering that one cause of the
Asian currency crisis was overdependence on the dollar, it is necessary to promote the use of the yen as a currency for
settlements and foreign reserves. This means systematically removing the factors that have hindered the
internationalization of the yen. Last month, Keidanren issued a set of proposals for a more open short-term financial
market and is pressing for their adoption.
4.Tax reform from a global viewpoint
Japan's third task is tax reform from a global viewpoint. To keep corporate vitality from weakening, Japanese businesses
from moving offshore, and foreign businesses from bypassing Japan, the aggregate national and local effective corporate
tax rate of 46.36 percent needs to be lowered at least to the U.S. level of 40 percent.
Recently Prime Minister Ryutaro Hashimoto said he would like to accelerate the three-year timetable for bringing the
corporate tax into line with international levels.
Keidanren is pressing the government and the ruling Liberal Democratic Party to present a clear-cut blueprint for
lowering the corporate tax rate to 40 percent in the fiscal 1999 taxation system revision.
In addition, the top income tax rate of 65 percent, which is extremely high in international terms, should be lowered to
around 50 percent, and the progressive tax curve as a whole should be made more gradual so as to lower taxes in all
income brackets. In February of this year, a special tax cut of 2-trillion was implemented; this is to be followed in
August by a further 2-trillion cut, half of the income-tax reductions provided for in 1998 included by the 16-trillion
stimulus package. Prime Minister Ryutaro Hashimoto has also indicated his intent to "answer the wishes of the people
and implement further tax cuts from next year as part of a permanent overhaul of Japan's tax system."
5.Further deregulation
The fourth task is continued deregulation. My predecessor, Dr. Shoichiro Toyoda, identified Keidanren's prime concern
as the promotion of deregulation aimed at rectifying Japan's high-cost structure and encouraging new industries and
businesses, and we have been working towards this. As a result, deregulation has progressed considerably, but the job is
not yet finished. We will continue to provide full backup to the Deregulation Committee of the government's
Administrative Reform Promotion Headquarters, which is studying further deregulation in line with the new three-year
program for the promotion of deregulation.
In addition, negotiations between Japan and the United States for deregulation in four sectors - housing, medical
equipment and pharmaceuticals, telecommunications and financial services - have been underway since last year under
the Enhanced Initiative on Deregulation and Competition Policy, and at the Japan-U.S. summit meeting held during the
Birmingham Summit this year, it was agreed to add energy to the list.
Mr. Michael Jordan, chairman of the U.S.-Japan Business Council, has touched on the deregulation of electric power
providers. I would like to say a little about Japan's efforts in this area. With the 1995 amendment of the Electricity
Enterprise Law, wholesale providers are now exempt in principle from having to receive government permission, and
systemic reforms have been implemented, including the introduction of open bidding for power companies' procurement
of electric power and measures to enable the establishment of retail providers serving specific localities.
The introduction of open bidding resulted in a four- to fivefold increase in bidders for power company contracts in fiscal
1996 and 1997, generating extremely intense competition. Through open bidding, it becomes clear that there exist many
electricity providers.
In order to make the business environment more attractive, in May last year, the government formulated an action plan
for economic restructuring and creation. This addressed the electric power sector, among others, stimulating deeper
debate on systemic reform in the Electric Utility Industry Council, which I chair. On the basis of study of systemic
reforms in the United States and other countries, we have been intensifying our discussion of the creation of a new power
system that can meet the demand for greater efficiency and lower costs on the one hand and energy security,
environmental protection, and a reliable supply on the other.
According to the interim report issued in May, the working group is contemplating the partial liberalization of retail power
sales to begin with, and will further study such details as the scope and timing of liberalization in the future. Specifically, to
ensure a level playing field for existing power companies and new entrants, it intends to study responsibility for supply,
regulation of fees, and the degree of freedom to pull out of the market, as well as rules to ensure the fair and transparent
use of power lines.
Mr. Jordan has discussed the deregulation of power providers in the United States. As you can see, Japan is also
seriously addressing this issue.
6.The political landscape
Finally, I would like to comment briefly on Japan's political scene. Accomplishing the major tasks facing Japan that I
have talked about- economic recovery, the disposition of bad loans, tax reform, and so on - calls for strong political
leadership.
It has long been said that Japanese policy making is bureaucracy led, but true administrative reform will never come
about if everything is left to the administrative branch of government. Fortunately, in facing the economic crisis that
emerged last year, Japan has seen an increase in politically led policy formulation and implementation. Partly because,
unlike the United States, Japan has a parliamentary cabinet system, traditionally most bills have been drafted by the
bureaucracy, but since last year the number of Diet members' bills have increased. Keidanren is doing its best to
encourage politicians who are keen to promote members' bills. For example,thanks to Keidanren's encouragement,
legislation was passed recently allowing stock options and cancellation of its own share, both measures, embodied in
members' bills, were enacted in an unusually short time. Keidanren will continue to cooperate actively in improving
politicians' and political parties' policy-drafting skills.
7.Conclusion
As I have just explained, Japan now faces very challenging conditions. At such a time, it is extremely significant for
Japanese and American business representatives to meet in a forum like the Japan-U.S. Business Council, exchanging
views candidly and pooling their wisdom to resolve problems. I sincerely hope that the two-days gathering will be very
fruitful. Thank you very much.
Home Page in English
|
