16 February 1998

(Provisional translation)

(Introduction)

In thinking about Japan's future and prioritizing the tasks that lie ahead, and being conscious of today's world, I have bent all my strength behind a foreign policy that is responsive to the international community in the post Cold War-era, to the resolution of the Okinawa issue and to the Six Reforms, including administrative reform. It has been about two years since I took on the post of Prime Minister. Looking back on this period, I would like to again state frankly the direction that Japan currently needs to take.

The first task is to overcome the economic difficulties that Japan has experienced over the last decade and reform Japan's entire system-a system which is currently suffering from systemic fatigue. Both the domestic and international situation are currently undergoing dramatic changes such as the phenomena of globalization and the aging of society coupled with a decline in the birth rate. Amidst this change, we must proceed with reform in order to continue stable development in Japan. My heartfelt goal is to build a country in which independent individuals can sufficiently exercise their creativity and boldly face challenges to realize their dreams-to build a country that is sensitive and flexible to the various changes. I want to build a society which respects its elders and in which the importance of the heart and the wisdom of living can be communicated from parents to children. Furthermore, I want to see a society which treasures its rich natural environment, its tradit! ! ions and its culture and is abl e to develop these. The reforms which I have been advancing are based on this awareness, and I am resolved to carry these out with a unified effort by the Cabinet no matter what difficulties arise.

Secondly, I would like to speak about our children-the bearers of this country's future. Since the Meiji Era, education has been seen as something that not only parents and regional communities but also the government should actively engage in. The level of school education in Japan today, on average, is said to be the highest in the world. However, as lifestyles have grown more affluent, as the role of the family has changed and as more children have enjoyed higher education, certain problems have become extremely serious. These include "exam war," bullying, children refusing to go to school and juvenile delinquency. I believe that children are deeply troubled and are looking for help. The harsh reality is that children do not feel that they belong either at home or at school. Children have nobody to turn to about their concerns; which schools or jobs to take, relationships with friends or male-female relationships. They are unable to find answers to these problems. If thi! ! s situation is left as is, it w ill definitely cause serious trouble later on. This is a difficult issue, but I hope we can put our heads together and tackle this head on.

The third issue is a foreign policy which responds accurately to movements on the world stage as we seek a post-Cold War international order. The East-West standoff, which divided the world in the wake of World II, is now a thing of the past. Japan's diplomacy is broadening its horizons as can be seen in the drastic improvement in Japan-Russian Federation relations and the increasing importance of peace and stability of the Asia-Pacific region. I will push forward with a proactive foreign policy that is based on this awareness.

Now I will lay out my policy directions with these points in mind, asking for the understanding and cooperation of all of you.

(A strong Japanese economy)

Since the mid-1980s, the abrupt appreciation of the yen and the subsequent emergence and collapse of the bubble have caused major economic fluctuations for our economy. The collapse of the bubble led to a plummet in land prices, an imbalance in the supply and demand of land and a worsened non-performing problem, and left companies in difficult financial straits. Since last summer, a number of Asian countries have experienced currency and financial market turmoil, with Japan itself seeing a series of financial institution failures. We must overcome these issues to break free of economic standstill at the soonest possible time and rebuild a strong Japanese economy. The stability of the financial system and economic recovery are vital to this task. Economic structural reform and other structural reforms are equally indispensable. There has been no change in the need for fiscal structural reform. It also goes without saying that we will take measures as necessary, responsive to! ! change in the economic and fin ancial situation.

At the current Diet session, I have channeled all my energies into passing the supplementary budget for FY1997 and related legislature so as to stabilize the financial system and get the economy on the road to recovery as soon as possible. I would like to thank the Diet members for their cooperation. In addition to the Emergency Economic Policy Package, a temporary income tax reduction on a scale of two trillion yen and the FY1997 supplementary budget, I will work on the swift and appropriate execution of measures to stabilize the financial system. In the FY1998 budget, funds have been secured to contribute to the stability of the people's livelihoods and to economic structural reform, including social security, the environment, science and technology and information telecommunications. Moreover, public investment will be made more focused and more effective. General expenditure will decrease by 57.5 billion yen or 1.3 percent, which is the largest ever decrease. Public bon! ! ds will be reduced by 1.15 tril lion yen. I am also working to realize the disposal of long-term debt of Japan National Railways and a radical reform of national forest management projects, including debt disposal. I ask for your cooperation toward the earliest possible approval of the budget to ensure economic recovery.

Confidence in the financial system is gained through accountability on the part of administration, financial institutions and participants in financial and capital markets. The government is responsible for the swift implementation of measures toward stability of the financial system and the fair and transparent execution of financial administration. At this critical point, Ministry of Finance officials and directors of special public corporations who have been appointed from the Ministry have engaged in deplorable behavior and have deeply injured confidence in financial administration and administration as a whole. I take this with utmost seriousness, and will have the Minister of Finance perform a thorough internal survey and punish those involved severely to reinforce discipline and to reform from scratch the very ground upon which such scandals are repeatedly occurring. I am also determined to realize the formulation of the so-called "ethics law" for government official! ! s. In regard to financial admin istration, I will make it transparent based on objective and fair rules. Financial inspections will be made strict and effective through, for example, the appointment of private sector experts and the utilization of external auditors. I also request financial institutions to engage in the thorough rationalization of operations and disclose information on a par with international standards. The responsibility of management personnel of failed financial institutions must be subject to severe scrutiny.

While moving forward with the above, I am aiming for a fair and efficient financial system in which assets achieved through work and savings can be managed profitably, and in which capital can be procured at a cost which reflects the inherent risk. Thus, measures such as the complete liberalization of commissions and fees in stock brokerage, the complete clearance of security derivatives, and the development of fair securities trading rules will be implemented. Along with the advance of financial system reform, finance-related tax systems will also be addressed. The securities transaction tax rate will be cut by half in FY1998, and a review of finance-related tax systems will be undertaken by the end of 1999 with a view to abolishing the securities transaction tax together with a reform of the taxation on capital gains.

I will now turn to economic structural reform. The strong Japanese economy I am aiming for is one in which lively competition in a highly transparent market hones both people and technology and circulates capital, with these three elements naturally concentrating in promising areas. The economy I envision is one in which personal consumption and private-sector investment are the main players in growth, and one in which places of high-quality employment are created. In such a Japan, needs in such areas as welfare, telecommunications and the environment, will become increasingly pressing. Industry will have to respond to these demands. Moreover, in order to make Japan a more attractive option as a place to do business, we will engage in extensive easing and abolishing of regulations in areas such as distribution and transport, electric power, petroleum and other forms of energy, and telecommunications to ensure that Japan's service standards, including costs, reach internati! ! onal standards by the year 2001 . Tax Reform for FY1998 will include cuts in the basic tax rates for the corporation tax and local business tax, and will promote the creation of new industries, developing a business environment that can encourage the activities of internationally-competitive companies. It is important that the total tax rate level of national and local corporate income taxes be brought close to the international average, and from this perspective too, considerations will be pushed forward on the issue of local business tax assessment on the basis of the size of business.

As industrial structure changes and employment practices based on lifetime employment and the seniority system are rethought, diversifying the shape of labor is a vital issue-both in terms of enhancing job satisfaction and of increasing the productivity of the country as a whole. I will therefore reform the labor system to facilitate movement from one job to another and to eliminate any disadvantages caused by changing jobs, amend the Labor Standards Law, support those who take initiatives to develop their abilities, and promote employment for the elderly. Measures will also be formulated flexibly in response to unemployment problems that arise from business failures. In terms of technology, the creation of new industries will be promoted through R&D cooperation among academia, industry and government and utilization of the fruits of this cooperation, and through the appropriate protection of intellectual property rights. Furthermore, efforts will be made to foster human re! ! sources for small- and medium-e nterprises and to foster technology and skills to support production-the wellspring of our country's competitiveness.

The development of agriculture, forestry and fisheries and of the villages involved in these industries is of enormous importance in economic structural reform as well as in the stable supply of food and in protection of the natural environment and national land. In addition to the promotion of the new rice policy created last year, I will continue to work on sweeping reform of agricultural policy, including considerations toward formulation of a new basic law on agricultural policy.

(Independent individuals and social solidarity)

As I said at the outset, children are facing extremely serious problems, including stabbing incidents where the victims are wounded or killed, drug abuse, bullying at school and sex-related issues. We must go beyond a focus on superficial phenomena to think about what lies at the heart of these problems. It is my strong wish that our children be glad that they have been born into this world, that they push forward confidently toward their goals, and that when they have grown, they will engage actively in social issues. The problems cannot be resolved by families and schools each emphasizing the other's responsibility. The time has come for broad-ranging discussion in which families, schools, local communities and also the mass media bring their respective experiences and views to bear in understanding why children are acting as they are and thinking about what should be done about the situation, with adults acting hand-in-hand to take the responsibility for considering and ! ! implementing appropriate measur es. Education, which is supposed to teach commonsense, knowledge and wisdom, has somewhere become a means for everyone to go to good schools and acquire good jobs. Have we become parents and teachers trying to squeeze our children into the mold of what is considered to be a good child? In promoting educational reform-including education which values individuality over marks; education of the heart; the creation of schools which respect the discretion of teachers in the classroom; a school system which allows more choice, such as the integration of junior and senior high schools; and the fostering of teachers who are receptive to children's troubles-we have to ensure adequate reflection of this awareness.

The premise of the Six Reforms is an independent individual, and the keys to creating a bright society and opening the way to the future are the dreams and aspirations of individuals; it is really a wonderful thing to see people working towards these. I am greatly looking forward to the performance of Japan's athletes at the Nagano Winter Olympic Games currently underway, at the ensuing Paralympics, and at the Soccer World Cup in June. I want to create a society in which children's hearts are set racing by these outstanding performances, inspiring them to throw themselves into the activity of their choice in their own communities-be it sporting, cultural or a volunteer activity-and developing their originality and their abilities.

To achieve both individual happiness and social vigor, we must build a fair, mutually-supportive and non-discriminatory society which values its solidarity and protects human rights. In the same vein, it will be absolutely vital to reform the stereotypical image of men's and women's roles whereby men work and housework and child-raising belongs to the women's sphere, creating instead a society in which men and women are both involved and share their joys and responsibilities. I will submit a bill to form the basis for this at the ordinary Diet session next year. I hope that labor and management will also stand behind me in ensuring that women can exploit their abilities to the full without sexual discrimination.

Social security and social welfare policies have played a major role over the years, and life-spans in Japan are the longest in the world. Looking ahead to an increased social security burden, reform must be pushed forward in response to changes such as falling birth rates, the aging of society and falling economic growth rates, in order to protect the public pension and national health insurance system covering all citizens and to guarantee the receipt of benefits. In terms of pensions, looking to next year's fiscal recalculation, we must think about parity between generations and the appropriate combination of public and private pensions, creating at the same time a system which will retain its stability over the years to come. Looking to health care, sweeping reforms will be carried ahead step-by-step to guarantee the receipt of medical care, starting from a review of pharmaceutical prices and medical fee schedules in terms of ensuring appropriate medical treatment costs! ! and fair burden-sharing. In mo ving ahead with these reforms, we will listen to the voice of the people from the policy measures formulation stage, discuss in full, and derive our conclusions. Moreover, we will enhance support for those raising children or caring for the sick and elderly, developing facilities and securing human resources to ensure the smooth execution of the nursing insurance system. Support will of course be extended to handicapped persons seeking to overcome their handicaps and lead independent lives, as well as to other vulnerable members of society truly in need of help.

(The invaluable environment, national land, tradition and culture, safety and security of our lives)

It is the government's role to carefully protect irreplaceable resources such as the environment, national land, tradition and culture, and to ensure the safety and security of our lives. Protecting the global environment so that we may hand it on to our descendants is one of our heaviest responsibilities. Last December, the world reached a major agreement toward the prevention of global warming. To realize this agreement, we will enhance energy conservation through measures such as strengthening the Law Concerning the Rational Use of Energy, promoting the development and utilization of nuclear energy and new forms of energy, developing innovative technologies and supporting developing countries. I would also ask each and every Japanese citizen for full cooperation, including a re-examination of his or her own lifestyle. Moreover, to use Japan's limited resources effectively and reduce waste, we will throw our weight behind waste disposal measures and recycling, starting w! ! ith legislature on the resale o f household electronic appliances. We will also make stringent efforts on new issues threatening human health and the natural environment, such as controlling dioxin emissions, responding to the so-called "environmental hormone" issue, and effecting measures against contagious diseases such as new types of influenza, as well as bioethical issues accompanying the advance of science and technology.

The twenty-first century will see an advanced information communications society in which anyone can access vast amounts of information with no time or spatial limitations. We must develop a strategic response to the advent of such a society. The government will make a strategic response to informatization-related issues such as the full-scale use of electronic commerce, the Year 2000 computer problem and so-called hi-tech crimes. We will also promote the development of network infrastructure and the increasing use of information and communications in the public sector such as education and health care, as well as increasing administrative informatization with the emphasis on user-friendliness.

The basis of national land policy from now on will be the formulation of a multi-axial national land structure. We will formulate and implement a new comprehensive national development plan, including the issue of transfer of capital functions. In Hokkaido, a comprehensive development plan will be pursued, making using of the open space and natural environment with which Hokkaido is blessed. In terms of the development of infrastructure, public projects will be focused and made more efficient, and we will introduce new methods in areas where private sector participation can be expected. We will review the land tax system and reexamine securitization of real estate and floor area ratios in city areas to promote the effective utilization of land, contributing to the reconstruction and redevelopment of the private sector, disposal of bad debt and revitalization of the economy. In addition, the convenience and comfort of cities will be improved in terms of both work and living.! ! The government will put in pla ce measures to revive central urban areas, as well as measures effective in promoting the prosperity of both large stores and the local community, supporting the development of the local community. Tradition, culture, arts and crafts-the heart of the country and the foundation for nurturing a rich spirit-will be carefully protected and fostered.

In regard to crisis management and measures against disasters, we have developed thorough measures based on the lessons learned from the occupation of the Japanese Ambassador's Official Residence in the Republic of Peru and the Russian tanker Nahotoka heavy oil spill, including the creation of an initial response structure and a tighter Cabinet response. We continue to take maximum efforts to restore the areas hit by the Great Hanshin-Awaji Earthquake. Further, a rigorous response will be made to armed criminals, drug abuse, organized crime and also actions damaging confidence in a fair financial and economic order, all of which threaten the livelihood of the people. The government will also work resolutely to root out antisocial behavior such as gangs and so-called "sokaiya." Measures will also be pushed forward for the prevention of traffic accidents, which have continued to increase over the last five years.

(Foreign policy)

I will look next at foreign policy. Picking up first on the increasingly critical situation involving the Republic of Iraq's relinquishment of weapons of mass destruction, inspection by the United Nations Special Commission (UNSCOM) in accordance with the relevant United Nations Security Council resolutions must be implemented immediately and unconditionally. Japan will continue its diplomatic efforts while working together with the United States of America and other related countries to deal with the situation.

The peace and stability of the Asia-Pacific region is Japan's most important foreign policy issue. The Asian currency and financial turmoil since last summer is not only impacting severely on the region's economy, but is also shaking the confidence of the world economy. If the Asian countries are to exploit their latent potential and continue their strong economic growth, economic and industrial structural reform must be pushed forward toward broad-based economies able to create their own wealth on the basis of transparent market principles. Japan will work with related countries and international institutions to resolve current issues, basing these efforts on the international framework centering on the International Monetary Fund.

The peace and stability of the Asia-Pacific region hinges on Japan, the United States, the People's Republic of China and the Russian Federation building mutual ties based on confidence and cooperation. Of these, I place most emphasis on significant improvement of Japan's relationship with the Russian Federation. President Boris Yeltsin of the Russian Federation will visit Japan this April. I will further enhance the relationship of trust which has developed between myself and the President and work toward the steady realization of results from our Summit talks held in Krasnoyarsk in November 1997, including the Hashimoto-Yeltsin Plan. Moreover, I will devote my utmost efforts to concluding a peace treaty by the year 2000 based on the Tokyo Declaration and to completely normalizing bilateral relations. As for our relationship with the People's Republic of China, with the Japan-China Treaty of Peace and Friendship nearing its 20th anniversary and President Jiang Zemin also s! ! cheduled to visit Japan, we are deepening dialogue at various levels to further develop the friendly relations between our countries, with Japan also encouraging further cooperation between China and the international community.

While factors such as the fishery agreement negotiations have caused a certain amount of tension in the relationship with the Republic of Korea, from a broader perspective I intend to establish a relationship of trust with President-elect Kim Dae Jung, and cooperation and exchange is moving ahead in a number of areas. In regard to North Korea, Japan is working closely with the Republic of Korea and other countries toward the peace and stability of the Korean Peninsula. At the same time, we are engaging seriously in issues such as suspected kidnappings, visits to Japan by Japanese spouses, the reopening of negotiations toward the normalization of relations, and the Korean Peninsula Energy Development Organization (KEDO).

The Japan-United States relationship plays a pivotal role in the peace and stability in the Asia-Pacific region and also in the advancement of "Eurasian diplomacy." We will develop still further this broad-ranging relationship, which covers security, politics and economy. Greater confidence in the Japan-United States Security Arrangements in particular is vital in terms of Japan's safety, while also leading to the peace and stability of the Asia-Pacific region as a whole. We will proceed steadily with work to ensure the effectiveness of the new Guidelines for Japan-U.S. Defense Cooperation.

Given that the presence of U.S. military forces in the Asia-Pacific region is essential for the peace and stability of the region, and at the same time recalling the burden long borne by the people of Okinawa and the fact that the Futenma Air Station is in an urban area, a dangerous situation which cannot be ignored, I have been putting all my strength behind resolution of Okinawan issues. It was for this reason that, putting together the Special Action Committee on Okinawa (SACO) final report, I proposed the construction of an alternate heliport as the best option, allowing the return of the Futenma Air Station. My resolution toward Okinawa remains the same. I will continue to throw all my strength behind the consolidation, realignment and reduction of U.S. military facilities and areas, persisting in my efforts to gain the understanding and cooperation of the local community in regard to the construction of an alternate heliport. I am also resolved to devote maximum effor! ! t to the economic revival of Ok inawa, including the northern area, and will make efforts to pass a bill including the creation of a special free trade zone system.

Turning to the defense of Japan, in line with the fundamental principles of maintaining an exclusively defense-oriented policy and not becoming a military power that might pose a threat to other countries, and at the same time ensuring civilian control and observing the Three Non-Nuclear Principles, the government will work within the Constitution of Japan to develop moderate defense capabilities based on the National Defense Program Outline and the Mid-Term Defense Plan reviewed at the end of last year. Japan will also work to build the confidence of neighboring countries through security dialogue in arenas such as the ASEAN Regional Forum (ARF)and through defense exchanges.

As populations grow, it will be of crucial importance to overcome issues such as food, energy and the environment and realize sustainable development. Japan will take a proactive approach to these tasks. We will also implement effective and high-quality assistance to support the self-help efforts of developing countries, focusing on poverty, social development, protection of the environment and human development. In regard to issues such as regional conflict, disarmament and non-proliferation, refugees and terrorism, Japan is taking an active role through, for example, participation in United Nations Peace-Keeping Operations. We are also working to ensuring overall balanced reform of the United Nations, which plays such a major role in this area, including the issue of Japan becoming a permanent member of the United Nations Security Council.

(Administrative reform)

The goals of administrative reform are to reduce the authority and the tasks of the central government, to realize simple administration and flexible, effective policy execution-realizing an open administration which has the confidence of the people. At the same time, administration closely related to local residents should be transferred to the greatest extent possible to local governments, which are also close to the people.

The government will create a plan to promote and steadily implement decentralization by the end of this Diet session, seeking to transfer more power to cities, towns and villages, to provide active support for the voluntary amalgamation thereof, to expand and secure local tax and fiscal sources in line with the division of roles between central and local governments, and to promote the expansion of local tax autonomy. We will strongly request local governments to engage in sweeping administrative and fiscal reform. The government will also create a new Three-Year Plan on Promoting Deregulation to promote further deregulation and regulatory relaxation. Beyond these efforts to cut back on the authority of and work performed by the central government, we will try to pass a bill as basic legislation toward a stronger Cabinet and reform of the central ministries and agencies toward the shift to a "one Cabinet Office and 12 Ministries" system as early as January 2001. In the proc! ! ess of this shifting, we will c reate a much leaner administration, including staff numbers, through reforms of work-site operations, the introduction of an independent administrative corporation system and sweeping reform of fiscal investment and loan systems, including the abolition of mandatory deposits through postal savings et al. The civil servant system will also be reviewed and the necessary reforms conducted.

The bill on access to government information to be put before this Diet session is critical in terms of facilitating the people, with whom the sovereignty of Japan rests, to evaluate and examine policy and provide their views, and encouraging their interest in politics and public administration. This bill must be passed at an early date. Moreover, as part of the endeavor toward a more open public administration, the government will also reform the Power Reactor and Nuclear Fuel Development Corporation.

Finally, as administrative reform removes regulations lacking in transparency and leads the shift to a public administration with a focus on ex post facto monitoring and relief systems, it will be vital to bolster the functions of the judiciary, which underpins the foundations of the state. The Cabinet will actively cooperate in this.

(Conclusion)

These, then, are my views on the issues before us.

This year will be one for overcoming the final phase of the post-bubble period and moving ahead powerfully toward reform. It will be a year of "gaining confidence in tomorrow." I have every confidence in the strength of this country and its people. We have crawled back from the ashes of defeat, survived temporary difficulties caused by pollution problems and dramatic changes in the international situation such as oil shocks and the strong yen. With that passion and wisdom and effort, there is no problem which we cannot resolve.

The duty of governance is to delineate a picture of the future and the direction which should be taken, and then to implement the policies needed to realize this. So that governance might win back the confidence of the people and respond to the people's expectations, the three-party ruling alliance is working hard on consultations on subjects such as political ethics, including measures to prevent political corruption and a review of the code of conduct prohibiting Diet members from concurrently holding other posts, and we will use the results to work toward the realization of clean and vigorous governance. Using the cooperative relationship within the three-party ruling alliance as a base and working with the various parties and factions, according to the policy, I myself will take the lead in this intense policy discussion and offer every ounce of my energy to the people of Japan.

In this, I ask sincerely for the understanding and cooperation of the people and my fellow members of the Diet.