[Provisional Translation]

CABINET PUBLIC AFFAIRS SECRETARY: We will now begin the press conference by Prime Minister Shinzo Abe.

The Prime Minister will first make a statement. Mr. Prime Minister, your opening statement, please.

Opening Statement by Prime Minister Shinzo Abe

Nearly a half-century ago today, October 1, the Tokaido Shinkansen bullet train started operation. Ten days later, the Tokyo Olympic Games were inaugurated. In those days, everybody believed that if one worked hard, one would be rewarded. A few years earlier, the universal health insurance system and universal pension system were established in Japan. This was the time when the foundation of Japan's world-renowned social security system, which exists to this day, was put in place. In the next half a century, the Japanese economy went on to experience oil shocks, a bubble economy, the collapse of the bubble, and a prolonged deflation that persisted for more than 15 years. In the meantime, national income fell considerably. Under such circumstances, a major issue has been how to finance the increasing social security costs every year. Unless Japan exits deflation and sets its economy back onto a growth trajectory, a truly stable social security system cannot be created for the future. The responsibility given to my Cabinet is to ensure that the Japanese economy regains hope, vitality, and confidence in growth, all of which the economy had on this very exact day half a century ago, and to simultaneously ensure that we maintain confidence in the country and pass the social security system onto future generations.

Today, I have decided to raise the consumption tax rate by 3%, increasing it from the current 5% to 8%, as was specified by law. There is no time to lose in securing financial resources to stabilize social security and rebuild the severe fiscal situation. That is precisely why last year, we, the Liberal Democratic Party (LDP), and the New Komeito Party voted in favor of the law to increase the consumption tax.

However, according to the latest data, despite a slight upturn in private sector salaries, everyone throughout Japan has not yet experienced the economic recovery firsthand. If the tax is increased under these circumstances, will consumption not decrease and the Japanese economy not fall back into the deep valley of deflation and economic stagnation? Will both fiscal discipline and social security stability not take a turn for the worse?

I carefully considered these possibilities until the very moment I arrived at my decision. What is the present Japanese economic situation? Due to the impacts of the three arrows of a different dimension, the economy is showing signs of recovery. Positive growth of more than 3% has been registered for two consecutive quarters. The ratio of job offers to job seekers has also recovered to 0.95. Production and consumption and finally capital investment are picking up. The contractionary mindset of the Japanese economy caused by 15 years of the deflationary mindset is now beginning to change. If this is the situation, then we should move decisively to execute bold economic measures in order to further make certain that this opportunity for economic recovery will not be lost. We will then be able to achieve both economic revitalization and fiscal consolidation. This was the conclusion I reached after giving the matter deep and careful consideration.

Around 250 years ago, my hometown, which was then part of Choshu Domain, suffered from a massive budget deficit. To rebuild its finances, a land survey was carried out, and revenue increased by over 40,000 koku. Nevertheless, then- lord of Choshu Domain, Shigetaka Mori, decided to invest this revenue for the future. As a result, there were land reclamation, development of new fields, and fostering of new industries including salt, paper, and wax. Investing 40,000 koku in the future improved the lives of the people in Choshu and became the driving force of the Meiji Restoration. Instead of using this 40,000 surplus koku to temporarily relieve the Domain from difficulty, Mori tried to develop a vision for the future.

The economic policy package that was compiled today is not a transient measure for a short-term economic pick-up. While softening the burden that people are asked to bear for the enhancement and stability of social security, in the coming years, investment will be promoted, wages will rise, and employment will increase. Our economic policy package is investment in the future. Increases in corporate earnings will lead to rises in wages and increases in employment. A pickup in consumption will in turn lead to further increases in corporate earnings. We will make investments to create a positive economic cycle.

Research and development will be encouraged, and capital investment will be supported. This will lead to growth and employment in the future. By promoting business restructuring, transforming the corporate structure, and supporting new venture startups, sustainable vitality will be generated. The effective corporate tax rate in Japan is high by international standards. To win against the global competition and attract overseas investment into Japan for sustainable growth, we need to seriously review corporate tax. Furthermore, through the taxation system, the Government will support companies that recirculate their increased earnings back to employees in the form of wages. While deepening the partnerships between the Government, labor, and management, efforts will be made to translate the fruits of growth into increases in employment, including employment of young people and women, as well as wage rises.

In addition, assuming that we translate economic growth in the immediate term into increased wages, the Government will review whether to abolish the special corporate tax for reconstruction one year ahead of the schedule. Of course, the major assumption of the abolishment is that we secure the 25 trillion yen in financial resources for reconstruction. At the same time, for those with low incomes, we will provide 10,000 yen per person. As to housing, I have decided to significantly expand the tax breaks for housing loans and create benefit measures to reduce the burden borne from the consumption tax increase.

The increase in the consumption tax rate must not impede the restoration and reconstruction from the Great East Japan Earthquake. Through the new economic measures, the Government will take steps to accelerate restoration and reconstruction efforts and establish benefit measures related to housing restoration for populations affected by the disaster. The new economic measures inclusive of these benefits will be established in early December. The size of the package will be 5 trillion yen in scale.

Another matter of critical importance is the realization of a smooth and proper transition to the new consumption tax. The Government as a whole will take robust measures for this transition. We will ensure that the world-renowned Japanese universal pension and health insurance systems are passed onto future generations. Measures to cope with the declining birthrate and measures to create a country in which women shine are urgent matters that concern the future of Japan. We will work to ensure that childcare waiting lists are eliminated. A comprehensive reform is designed to achieve each of these goals. Stable financial resources will be secured through the consumption tax, which will be used to maintain and strengthen social security.

We will use the consumption tax revenues only for social security purposes. We will naturally cut wasteful expenditure unremittingly. At the same time, we will maintain trust in Japan. If trust in Japan from overseas and from the market is lost, there would be serious impacts on the Japanese economy and on the lives of the people. We cannot allow that to happen. We will take a significant step forward towards achieving our goals of halving the primary fiscal deficit by FY2015 and realizing a surplus by FY2020.

There may be criticisms against increasing the tax on the one hand, while implementing economic measures on the other hand. However, if we give priority only to revitalizing the economy without increasing the tax rate, it will be questionable where there can be social security stability in the future and fiscal rehabilitation. Such a policy will not be sustainable. Meanwhile, if priority is given only to increasing taxes without taking economic measures, there is an extremely high risk of a relapse in economic conditions. Such a policy would also not be sustainable.

We have no other course open to us but to simultaneously achieve both economic revitalization and fiscal consolidation. I am convinced that the economic policy package decided today is the best scenario for achieving these objectives. An investment of 40,000 koku in the future made Choshu Domain prosperous, and at the end of the Edo Period, served as the foundation for fostering the young people who became the driving force of the Meiji Restoration, including Shoin Yoshida. As Shoin Yoshida famously said, "Once a man's will is set, he can triumph through any obstacle." I will move forward decisively with both the 3% increase in the consumption tax and the underlying economic measures which will contribute to Japan's robust economic growth.

I hereby ask for the understanding and support of the people of Japan regarding the current situation that Japan finds itself in and the conclusion I have reached.

That is all from me.

Q&As

CABINET PUBLIC AFFAIRS SECRETARY: We will now take your questions.

I will call on you if you have a question. Please state your name and affiliation before asking your question. As we would like to take questions from many people, please keep your questions as brief as possible.

If you wish to ask a question, please raise your hand.

Mr. Hara, please.

REPORTER (HARA, NHK): Prime Minister, my name is Hara from NHK.

Amidst talk of increasing the tax burden borne by citizens, there have been criticisms that the recent economic policy package favors corporations. You have just described your aim to raise wages and expand employment by increasing corporate profits. However, what are your concrete plans toward achieving this goal?

In addition, although you said you would "review" the abolishment of the special corporate tax for reconstruction a year ahead of the schedule, and reducing the effective corporate tax rate, it is my impression that you actually strongly intend to follow through with these actions. Are you aiming to abolish the special corporate tax for reconstruction in the coming fiscal year, and reduce the effective tax rate from the year after next onwards?

PRIME MINISTER ABE: First, I do not see this as a matter of corporations versus the individual.

Many individuals are now working in corporations and receiving incomes. They are working in companies, receiving their salaries, and making a living. If the profits of a company grow, this will lead to increased employment and higher wages. This will then add to the household income. However, during the prolonged period of deflation, companies did not invest or recirculate their earnings to their employees, rather, they continued to accumulate internal reserves. That is why we have to break out of this cycle of deflation.

In short, we need to create a situation whereby companies that do not invest, or do not properly recirculate profits to their employees, are at a disadvantage. In addition, I believe that we have to create a situation whereby our companies are able to stay competitive in the global economy, emerge victorious, retain employment, create new employment, and furthermore, increase wages.

We have to dispel this deflation mindset that has been ingrained in us for the past 15 years. I am aware that this will not be an easy task. However, though it may prove to be extremely arduous, I believe it is exactly for that reason that we should not let this current opportunity go to waste. We must create a situation in which Japanese companies can win against the global competition and increase their earnings, and create occasions for tripartite dialogues between the Government, labor, and management, to encourage companies to recirculate increased earnings onto employees in the form of higher wages as soon as possible. This will in turn have a positive impact on consumption, resulting in the creation of a positive economic cycle. I believe we have to create such an environment. To that end, my aim is to achieve recovery for the Japanese economy through the three arrows of Abenomics, and to ensure that all the hardworking people throughout the country will be able to experience the economic growth firsthand.

As for reviewing the abolishment of the special corporate tax for reconstruction one year ahead of the schedule, we will take steps based on the premise of raising wages through solid and steady economic growth, and with the aim of ensuring that everyone working hard can experience the fruits of this economic growth firsthand. Hence, our review will take into consideration the link between abolishing the special corporate tax for reconstruction and raising wages, and I hope that we will be able to arrive at a conclusion sometime in December. Of course, as I have explained earlier, our premise is to secure a stable source of reconstruction funds. The Abe administration has increased reconstruction funds from 19 trillion yen to 25 trillion yen, and has no intention of reducing this amount. The ruling parties have also decided to promptly commence a review of the corporate tax rate. I think that this is an issue that we have to consider seriously in view of ensuring the sustainable development of Japan, staying ahead of the global competition, and attracting overseas investment to Japan. Therefore, I would like the ruling parties to hold thorough discussions and conduct a serious review on this issue.

CABINET PUBLIC RELATIONS SECRETARY: Now, I would like to take a question form the next reporter.

Please go ahead Mr. Miyazaki.

REPORTER (MIYAZAKI, NISHINIPPON SHIMBUN): My name is Miyazaki and I work for Nishinippon Shimbun. Thank you for taking my question.

I think the raising of the consumption tax this time was quite a tough decision but the law has determined that it will be raised again to 10% in October 2015. When and how do you intend to make a decision about this? Furthermore, there have been calls for you to accompany this tax rise with reductions in income tax and inhabitants tax, etc., measures to alleviate the burden on individuals, and enhanced policies for people on lower incomes. How do you intend to specifically respond to this?

PRIME MINISTER ABE: Act for Fundamental Tax Reform stipulates that the consumption tax rate will be raised to 10% by October 2015 but I intend to make an appropriate judgment and decision on this matter, including the timing of the judgment, after once again comprehensively taking into account economic conditions and other factors, as stipulated in Supplementary Provision 18.

We are considering carrying out the bold tax breaks for capital investment and the abolition of the special corporate tax for reconstruction one year ahead of the schedule, in order to create a positive cycle in which the increase in the earnings of corporations lead to higher wages and employment growth, pushing up consumption and thereby leading to further corporate earnings, and I want to ensure that the fruits of this growth are experienced firsthand by the people throughout the country. In addition to this, in this economic policy package, we have decided to take strong measures that account for the increased burden due to the consumption tax, including a simple measure to pay 10,000 yen to people on lower incomes; enhancement and expansion of the tax breaks for housing loans, which will be the largest ever implemented; a measure to pay a maximum of 300,000 yen per home; and other measures.

In any case, it is not a simple matter of favoring companies or a matter of corporations versus individuals; I have carefully thought about the issues from the perspective of increasing the income of all the people of Japan.

CABINET PUBLIC RELATIONS SECRETARY: Now I would like to take the next question. Please put up your hand if you would like to ask a question.

Ok, Ms. Yamaguchi, please go ahead.

REPORTER (YAMAGUCHI, ASSOCIATED PRESS): My name is Yamaguchii and I work for the Associated Press. Thank you for taking my question.

Recently when you went to New York, in several of your speeches you expressed a willingness to revise the interpretation of the constitution towards permitting the exercising of the right to collective self-defense. On the other hand, you made comments about how defense spending is rising much more slowly in Japan compared to a militarily-rising neighboring country, and that if people wanted to call you a right-wing militarist for pointing that out then they were free to do so. Please tell us how you intend to conduct diplomatic relations going forward to shake off that kind of image, ease the concerns of our neighboring countries, and obtain their trust.

PRIME MINISTER ABE: At the Hudson Institute I said that we would create a Japanese version of the National Security Council and that going forward we would strongly adopt strategies for security. I have explained the purpose of examining the constitutional interpretation of the right to collective self-defense and the various constitutional interpretations with regard to collective security, and explained the thoughts and aims of the Government on these matters.

Furthermore, in my speech at the United Nations I discussed the nature of the "proactive contribution to peace" that will form the foundation of our foreign and security policy going forward and what we are aiming to achieve.

I gave explanations about these basic ideas primarily to the leaders of the ASEAN countries and also to the leaders of many other countries. I believe I have received the understanding of all of the leaders of countries that I addressed. Going forward I intend to continue to thoroughly and carefully explain what we are aiming to achieve and what kind of international contribution we are attempting to make.

CABINET PUBLIC RELATIONS SECRETARY: I would now like to take the next question. Does anyone have a question?

Go ahead Mr. Hayashi.

REPORTER (HAYASHI, ASAHI SHIMBUN): My name is Hayashi and I work for the Asahi Shimbun.

Regarding your review of the possibility of abolishing the special corporate tax for reconstruction one year ahead of the schedule, which you mentioned earlier, you have said that you would reach a conclusion by the end of December, premised on the assumption of wage rises.  I would like to know your own opinion on the specific requirements for wage rises that have to be met for that precondition to be satisfied?

PRIME MINISTER ABE: Firstly, as I stated earlier, the earnings of corporations will increase. Then, if the companies do not allocate those extra earnings to internal reserves but rather strongly invest these earnings, particularly in human resources, or in other words reflect the extra earnings in salaries, then that will lead to consumption. Furthermore, due to that consumption the earnings of corporations will increase once again, and the economy will grow. I believe it is absolutely necessary to receive the understanding of business managers with regard to the importance of creating such a positive economic cycle.

Therefore I have been talking to the business world, including the Nippon Keidanren, Japan Business Federation, since the beginning of the year, and they have taken some of the necessary measures to achieve this cycle. Moreover, recently I have been attempting to build a shared understanding regarding this issue in Government, labor, and management forums. I intend to make a decision on whether or not to abolish the special corporate tax for reconstruction one year ahead of the schedule, once I am convinced that we are gaining the understanding of the corporations regarding this matter and their views are changing to a great extent. Naturally I also intend to explain to the people in the disaster-affected region that in no way does this mean that the budget for reconstruction will be reduced, and I will make my decision as their understanding deepens.

CABINET PUBLIC RELATIONS SECRETARY: Finally, I would like to take just one more question.

Mr. Sato.

REPORTER (SATO, NIHON KEIZAI SHIMBUN): My name is Sato and I work for the Nihon Keizai Shimbun.

I would like to ask about your relationship with the ruling parties. There is some dissatisfaction among the ruling parties regarding the fact that insufficient coordination was sought by the Government in the process leading up to the present decision to raise the consumption tax. What do you think about this?

Also, previously the LDP Research Commission on the Tax System was supposed to be a special presence, but what do you think about the role of the LDP Research Commission on the Tax System as we approach the taxation system reform at the end of the year?

Furthermore, slight differences from New Komeito have been emerging with regard to security issues. How do you intend to build your relationship with New Komeito and seek their understanding of your position?

PRIME MINISTER ABE: Firstly, regarding coordination with the ruling parties, we designated most of August as a concentrated review period for hearing the views of a variety of experts regarding the raising of the consumption tax. In addition, based on the outcome of that review in September, we further examined the issue based on a variety of indicators and as part of that process, we asked the ruling parties to formulate an economic policy package in the event that the consumption tax was raised.

But at the same time, regarding this decision, as I stated earlier, we have been thinking it through for a long time, and in that sense although it is probably true that the ruling parties had only a short period of time to consider the matter, I think that during that time they discussed it intensively without taking any breaks for weekends or holidays.

Throughout the history of the LDP, there have been quite intense debates about a variety of important issues. However, I think that once the issue has been decided everyone work together and move in the same direction. I believe that we should take pride in this approach as one of the ruling parties responsible for carrying this out policies in the Government.

Moreover, regarding New Komeito, we are in a coalition government with New Komeito and I think it is a coalition government which has weathered many hardships. Even though we have worked together for a long time, I think we must never take that relationship for granted, and going forward I intend to continue making efforts to carefully obtain their understanding regarding government policies.

Naturally I intend to make efforts to obtain the understanding of New Komeito, a ruling party, an allied party, and an important ruling coalition party, regarding the security policies you have just mentioned.

CABINET PUBLIC RELATIONS SECRETARY: And with that I must bring this press conference to an end.

Thank you everyone for your cooperation today.

PRIME MINISTER ABE: Thank you.