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Inaugural Message from Mr. Toshimitsu Motegi, Minister of Economy, Trade and Industry

February 2013

Toshimitsu Motegi, Minister of Economy, Trade and Industry

1. New Government's Basic Policy and Emergency Economic Measures

(1) New Government's Basic Policy

In a little more than a month since the inauguration of the Abe government, stock prices, as measured by the Nikkei Stock Average, surpassed 11,400 yen to hit the highest level since the collapse of Lehman Brothers. In the foreign exchange market, the yen's excessive appreciation was corrected, with the dollar rising above 94 yen for the first time in two years and nine months. As a result, the Japanese economy, which had remained stagnant because of the historic appreciation of the yen, is beginning to show signs of recovery.

These developments reflect the market's high regard for the new government for making clear its basic policy for revitalizing the economy and high expectations for its efforts to implement emergency economic measures that have been adopted as a flexible fiscal policy approach..

What the Japanese people are expecting the new government to do is, first and foremost, to achieve economic recovery and revitalization. The government must perform three tasks, so we have adopted a "three-pronged approach" to revitalize the economy.

The first prong is to carry out a bold monetary relaxation policy by setting a clear inflation target to overcome deflation and correct the yen's excessive appreciation.

The second prong is to avoid a further economic downturn and to achieve an economic recovery by implementing a seamless set of measures, including a large package of economic measures under the FY2012 supplementary budget and measures under the FY2013 budget, as a flexible public finance policy approach to create effective demand.

The third prong is to encourage private-sector investment by executing a growth strategy.

(2) Emergency Economic Measures, FY 2013 Budget and Tax System Reform

Cabinet decisions on emergency economic measures and the FY2012 supplementary budget have recently been made. These represent an economic policy approach that is of a different dimension compared with previous economic measures. The budget of measures related to the Ministry of Economy, Trade and Industry (METI) amounts to 1.2 trillion yen, the largest ever for METI.

The METI-related portion of the FY2012 supplementary budget has five pillars. First, we have provided budget allocation for subsidies (349 billion yen) for advanced capital investment in order to strengthen Japanese companies' international competitiveness and promote energy conservation by encouraging private sector investment. Second, we will seek to increase the supply of risk money as a means to promote research and development and technology development investment. Third, to support small and medium-size enterprises (SMEs) and micro enterprises, we will create a subsidy program (100.7 billion yen; applicable to around 10,000 companies nationwide) for supporting trial production and development utilizing such companies' advanced technologies so as to promote commercialization. Fourth, we have also provided budget allocations for a project to promote overseas expansion of Cool Japan contents, and, fifth, thorough inspections of industrial complexes and other related facilities including seismic assessments across Japan in relation to disaster prevention and post-earthquake reconstruction.

We will also implement the FY2012 budget as a seamless set of economic measures based on the concept of a "15-month budget" ("15-month" refers to the last three months of FY2012 plus the whole of FY2013).

For example, in order to promote the revival of Japanese industries, we have provided sufficient budget allocation for the development of advanced technologies, including composite material technology. Moreover, we will continue to place priority on the growth of high-value-added service industries, including the medical and nursing care industries and industries related to the Cool Japan Strategy, just as under the supplementary budget. Through those budgetary measures, we will strengthen the trend toward economic recovery and revitalization.

Regarding tax reform, we will take bold measures that contribute to economic revitalization by stimulating demand and encouraging private sector investment, including the abolition of the automobile acquisition tax, which has been a long-pending issue, a considerable expansion of tax cuts for research and development, and revision of the business succession tax system. Thus, we will tackle the challenge of economic revitalization through both budgetary measures and tax reform.

2. Control Tower of Economic Policy and Growth Strategy

(1) Control Tower of Economic Policy

The government has overhauled the organizational structure for tackling the challenge of economic revitalization. First, the Council on Economic and Fiscal Policy, which has restarted after three and a half years in abeyance, is charged with working out the basic design of future economic and fiscal policy management. To overcome deflation and correct the yen's excessive appreciation, a specific inflation target of 2% was set and bold monetary relaxation will be carried out.

As another control tower of economic policy, the government has established a new organization called the Headquarters for Japan's Economic Revitalization (the Economic Revitalization Headquarters), which is charged with designing plans for implementing economic policy measures. Under the Economic Revitalization Headquarters, the Industrial Competitiveness Council has been set up in order to map out growth strategies, including a "strategic market creation plan" and a strategy for overseas expansion by Japanese industries, inviting related cabinet members including me, business management, and private sector experts as the members of the council.

(2) Strategic Market Creation Plan

When mapping out future growth strategies, we will take a new policy-making approach. Under the new approach, concepts such as what kind of society should be created and what kind of personal lifestyles are desirable will be defined as a first step. According to the concepts, we will incorporate necessary projects and core technologies required to realize the concepts in the strategy at multi levels.

For example, if Japan is to aim to create a society which not only boasts the longest life expectancy in the world but also enables people to remain in good health in old age, it will be essential to promote practical use of iPS cell technology, rather than merely pursuing research. It will also be necessary to implement strategic growth plans in a wide range of business sectors and technology fields, including the development of advanced medical equipment and nursing robots and the creation of an electronic database of medical information.

We will identify strategic fields through discussions at the Industrial Competitiveness Council and devote all available policy resources (budgetary measures, tax measures, financial assistance and regulatory reform) to targeted fields. This is the strategic market creation plan.

3. Eliminating the "Quadruple Difficulties" Afflicting Japanese Companies

While fostering cutting-edge industries as mentioned above, it is also necessary to take measures to rejuvenate existing industries. There is no doubt that the environment surrounding Japanese companies is unfavorable from the perspective of international competition. Some people say that Japanese companies are afflicted by three major difficulties, while others speak of six major difficulties. Roughly speaking, I would say that Japanese companies are suffering from a set of "quadruple difficulties." Namely, they face the following four major problems: 1) the yen's appreciation in the foreign exchange market, 2) cross-border measures including tariffs, 3) corporate and other tax systems and domestic regulations and 4) high domestic costs, including high resource, energy and electricity prices.

(1) Foreign Exchange

The first problem is the yen's appreciation in the foreign exchange market. While the yen's strength against the dollar is attracting attention, the yen's value against the South Korean won has doubled over the four years through 2012. This makes it quite difficult for Japanese companies to compete with South Korean rivals.

Overcoming deflation and correcting the yen's excessive appreciation are the new government's top priority tasks. Therefore, the government will set a specific inflation target and carry out bold monetary relaxation, aiming to achieve an inflation rate of 2%, similar to levels in other major countries.

(2) Cross-border Measures (Tariffs, FTAs and Economic Partnerships)

The second problem is the cross-border measures. Amid the ongoing globalization of economic and corporate activities, Japan has been lagging behind other major countries in the effort to form economic partnerships, including the conclusion of FTAs (free trade agreements) and EPAs (economic partnership agreements). Ten years ago, when I became parliamentary senior vice minister for foreign affairs, Japan had an FTA or EPA with only one country, Singapore. Therefore, while serving in that post, I ordered the acceleration of the conclusion of EPAs while prioritizing potential partners, and as a result, Japan conducted negotiations with various countries.

Incorporating the benefits of the growth of the Asia-Pacific region is essential to Japan's future growth, so the government must further accelerate the formation of economic partnerships. Keeping that in mind, we will speedily and vigorously conduct negotiations on economic partnerships with other countries and regions, including a Free Trade Agreement(FTA)among Japan, China and Republic of Korea, the RCEP (Regional Comprehensive Economic Partnership) and the Japan-EU EPA.

Regarding the TPP (Trans-Pacific Partnership), the government's basic stance is to examine the results of preliminary consultations held by the previous government and explore the best possible option that suits Japan's national interests as a first step while taking account of the Liberal Democratic Party's election campaign pledges (e.g., opposing participation in TPP negotiation as long as abolition of tariffs without exception is a precondition) and the coalition government agreement. When I visited Switzerland the other day to attend the World Economic Forum's Davos meeting, I had a meeting with Ambassador Ron Kirk, the United States Trade Representative. In the future, we will continue to explore the best possible option that suits Japan's national interests while estimating the domestic impact of the TPP and conducting negotiations with the United States.

(3) Domestic Systems (Regulatory Reform)

The third problem is domestic systems. Carrying out regulatory reforms is an issue of the utmost urgency from the perspective of strengthening the competitiveness of Japanese industries. The key points are 1) creating a sound competitive environment by encouraging new entrants (e.g., reform of the electricity system), 2) reducing the time required for commercialization (e.g., early practical use of iPS cell technology) and 3) adapting Japanese systems to international standards so as to prevent isolation from other countries (Japan's Galapagos syndrome). Regarding those points, the new Regulatory Reform Council, in cooperation with the Headquarters for Japan's Economic Revitalization, will conduct consideration.

When a Japanese system differs from foreign ones (galapagosization; risk of international isolation), we will use a new approach called the "international comparison test," which requires that a Japanese regulatory system that is not consistent with an international system should be adapted to conform with the latter within three years unless there is a rational reason for making no change.

(4) Domestic Costs (Resources and Energy)

1) Diversification of Means to Secure Resources

The last problem is high domestic costs, including resource and energy prices.

In particular, ensuring stable supply of resources at low cost is vital to the Japanese economy and industries. We believe that Japan should strengthen its relations with resource producing countries through active resource diplomacy. At the same time, we should execute its resource strategy from the perspective of diversification of both resource suppliers and energy sources, including LNG and shale gas, by supporting Japanese companies' acquisition of foreign resource interests through the provision of risk money by the Japan Oil, Gas and Metals National Corporation (JOGMEC), among other measures.

2) Renewable Energy

Expanding the introduction of renewable energy is very important from the perspective of achieving energy security by diversifying energy sources and by increasing the energy self-sufficiency rate. As a priority task for the moment, we will seek to introduce renewable energy to the maximum possible extent for the next three years. Besides, it is essential to steadily manage the feed-in tariff system. We will constantly review purchase prices of surplus electricity while taking care to strike the right balance between the burden on households and the incentive for promotion of renewable energy introduction.

3) Nuclear Power

Recently, I visited Fukushima and entered the building of Unit 4 of Tokyo Electric Power Company's Fukushima Daiichi Nuclear Power Plant for the first time as an incumbent minister. This visit gave me a keen sense that the government faces many tasks, including research and development of technologies necessary for proceeding with decommissioning of nuclear reactors that is extremely difficult and unprecedented anywhere in the world.

In the meantime, based on a strong sense of remorse and the lessons learned through the Fukushima nuclear accident, a "safety first" approach must be upheld as the primary principle when deciding whether or not to allow the restart of a nuclear power station. A decision as to the safety of nuclear power stations should be left to the expert judgment of the Nuclear Regulation Authority (NRA). The restart of a nuclear power station will not be allowed unless the station is recognized as safe by the NRA. Conversely, if a nuclear power station is recognized as safe by the NRA, we will respect the judgment and allow the restart.

4) Electricity System Reform

Another significant challenge related to domestic costs is the reform of the electricity system. The direction of the necessary reform is clear. The key points are i) promoting the liberalization of the retail market, ii) enhancing the neutrality and independence of the power transmission/distribution sector and iii) expanding broad inter-area operation. Regarding the reform of the electricity system, we will soon compile a draft proposal with the basic stance of "steadily implementing bold reforms" and submit a bill to amend the Electricity Business Act to the current session of the Diet.

4. Conclusion

As I have explained above, we will swiftly tackle the task of revitalizing the Japanese economy with the three-pronged approach and map out and execute a new growth strategy and international expansion plan. By eliminating the "quadruple difficulties" afflicting Japanese companies, we will make Japan "the best place for companies and individual persons to do business."

By fostering new growing industries adapted to this new economic environment, we aims to lift the Japanese economy up to a new stage in which there is a broad and thick base of industries with many high peaks ("prōgressiō japonica"). I should view this year as the first year of this challenge.

 
Last updated:2013-03-06
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