While the Japanese economy has hit the bottom, the employment and income environments remain severe, and conquering deflation is the greatest issue during the intensive adjustment phase. In an effort to overcome deflation, the government devised an Advanced Reform Program in October 2001 and an Immediate Action Program for Structural Reform in December, followed by measures emphasizing the financial aspects from mid-February this year. Henceforth, the government will focus on structural reforms toward expanding employment and private-sector demand. The realization of self-sustaining economic growth will be the basis for conquering deflation. The government will implement bold and flexible policy administration depending on economic conditions while focusing on the harsh employment conditions.
The three ruling parties presented a deflation countermeasures proposal on April 2, and partially based on this the Council on Economic and Fiscal Policy and other concerned bodies have conducted examinations on a "Basic Policy" for future economic and fiscal policy administration. This "Basic Policy" drafted in preparation for the upcoming G8 summit meeting, will serve as the foundation for Japan's future deflation countermeasures. As the early realization of this "Basic Policy" will accelerate Japan's progress in conquering deflation, those items that can be rapidly implemented should be examined and implemented at the earliest possible date.
The government of Japan and the Bank of Japan will continue to carry out vigorous and comprehensive measures to overcome deflation.
1. Advancing Economic Revitalization Policies
Regulatory reform and other economic revitalization policies should be vigorously advanced toward enhancing Japan's industrial competitiveness and reviving the nation's cities.
(1) Advancing the "Economic Revitalization Strategy"
The "Economic Revitalization Strategy" should be implemented as early as possible, beginning with the following measures.
- Promote urban and regional revitalization by actively utilizing "Special Zone for Urban Renaissance" and implementing other measures based on the Law on Special Measures for Urban Renaissance.
- Expand the range of private-sector business via privatization and regulatory reform, manifest latent demand, and establish demand-creation type lifestyle industries.
- Draft technology development and marketization strategies for the four priority fields of environmental technology, IT, biotechnology and nanotechnology within FY 2002.
- Revise the Law on Special Measures for Industrial Revitalization to radically strengthen this legislation within FY 2002, and promote bold business restructuring among enterprises and industrial restructuring.
- Diversify funds supply by advancing such measures as providing guarantees for accounts receivable, establish a safety net including smooth funds provision and advance development supports for strategic technologies, adding to efforts by medium and small enterprises themselves, which have a wealth of creativity and zeal, to embrace the challenge of creating new businesses and to promote their business restructuring. Revise the systems for founding and managing companies to foster more active entrepreneurial activities, and prepare a business creation support system with incentives for private-sector investors.
- By promptly restructuring national universities into corporate bodies that are not staffed by public servants, and promoting education attaching importance to personal character, foster the development of human resources, which are the source of economic growth.
(2) Advancing the "Three-Year Program for Promoting Regulatory Reform"
Strive to rapidly implement the "Three-Year Program for Promoting Regulatory Reform" ahead of schedule, based in part on demands from business circles and other concerned parties.
(3) Rapidly Establishing "Special Zones for Structural Reform"
The "Special Zone for Structural Reform" will serve as a catalyst for regional revitalization. Immediately establish a promotion framework within the Cabinet Secretariat, instruct the relevant ministries and agencies to examine the contents of the required systems reforms taking into consideration the specific proposals of local governments, coordinate among these ministries and agencies, and then rapidly advance the specific systems reforms.
2. Tax System Reforms
It was special this year for the Council on Economic and Fiscal Policy and the Tax Commission to kick off discussion since the beginning of the year for intensive deliberations toward implementing fundamental tax system reforms from FY 2003. Clarify the image of the nation's future tax system for economic revitalization as early as possible, including those items stipulated in the deliberations on the FY 2003 tax system reforms conducted by the Tax Commission.
Among those agendas, R&D promotion tax and prioritized investment promotion tax will be established to contributing to revitalization of corporate activities. Inheritance tax and gift tax will also be revised to smooth asset transfer between generations. Those revisions will be principally effective on January 1st, 2002. In particular, sketch of corporate tax revision will be publicized as soon as possible, to contribute to investment planning of corporate sectors. The revision of transfer tax regarding land will be discussed in the context of contributions to land utilization including urban revitalization.
3. Establishing a Vigorous and Stabilized Financial System
The following policies will be implemented to establish financial system trusted by depositors, with paying attention to the effect of quick disposal of NPLs on finance and economy.
(1) Steadily Dispose of Non-Performing Loans
Advance the disposal of non-performing loans under market discipline and strict asset evaluations, aggressively utilize the RCC functions including assets-in-trusts, and realize steady progress in disposing of non-performing loans in accordance with the concrete targets (whereby, in principle, 50% of the non-performing loans should be disposed of within one year and 80% within two years).
(2) Advance the Structural Reforms of Securities Markets
Further advance the structural reforms of securities markets to achieve a shift toward direct financing by switching from policies that promote savings to policies that promote investment.
(3) Compile a Mid-term Vision
The measures to establish financial system that can be vigorous and trusted by depositors will be further strengthened. The Financial Services Agency will compile a Mid-term Vision of financial sector to make a survey for the future financial system.