August 7, 1998

Recently appointed as Prime Minister, I have shouldered a heavy responsibility, and as such, I feel strongly that in facing up to the serious situation currently confronting our country, losing courage today would spell complete defeat tomorrow. You have my assurance that I will commit myself, body and soul, to addressing affairs of state.

The most important issues of the moment are the prolonged stagnation of the economy and the loss of confidence in our financial system. The recent Upper House elections made clear that above and beyond all else, the people of Japan regard the economic situation as extremely critical, and want an economic recovery as soon as possible. Giving serious attention to this call from the people, I have designated my Cabinet as a "Cabinet for Economic Revival," and will move forward decisively. The greatest way in which Japan can contribute to Asia and the world is through the sound functioning of the Japanese financial system and the revitalization of the Japanese economy.

The most important element in overcoming the current critical state of the national economy will be the crystallization of the wisdom of the people. To this end, I have decided to establish a Strategic Economic Council under my direct jurisdiction for consideration centering around members of the private sector and economic specialists. Then, I myself will make the final decisions and implement the policies which emerge. I will also lend an ear directly to the voices of the people of Japan-- workers and managers of small and medium enterprises, as well as others--and create as many opportunities as possible to explain my own views.

Contemporary Japan stands at a major juncture, faced with rapid progress in terms of the aging of society, a falling birth rate, computerization and internationalization. The people of Japan have begun to have concerns about the future of our economy and society. Politics must dispel these fears, give the people dreams and hopes, and should be trusted by the people. To break free from the current imbroglio and build a prosperous and secure society, I will move policies quickly into place on the basis of political leadership, simultaneously clarifying where responsibility lies.

I ask for the support of the people of Japan and members of the Diet in this endeavor.

(Resolution to restore the Japanese economy)

It is of highest priority to address the non-performing loan problem decisively in order to reconstruct the Japanese economy. The government will put the so-called Bridge Bank scheme into operation. It will also see to it that the organization and procedure will be established for the prompt and smooth settlement of the relationship between creditors and debtors of collateralized real estate underlying bad loans as soon as possible on the basis of the Comprehensive Plan for Financial Revitalization. Therefore, we have already submitted the necessary bills to the current Diet session, and the related bills are also proposed by members of the Diet. I will tackle with the issue of the disposal of non- performing loans by financial institutions on the basic principle that depositors are protected and financial revitalization is achieved as quickly as possible. I would like to ask understanding and cooperation for the prompt approval of these bills.

The flow of funds is like the blood of society, and the financial institutions that are responsible for its circulation assumes the role of the heart. A partial failure in the financial sector, therefore, might lead to a systemic crisis. I would never let a systemic crisis occur. Public funds will be used to revitalize the financial system in the course of implementing the Comprehensive Plan for Financial Revitalization. In this context, the Cabinet as a whole will handle this issue in a responsible way so that the people of Japan would understand its necessity. On the other hand, it is necessary that financial institutions adopt the internationally accepted level of disclosure and boldly engage themselves in their own reorganization and restructuring. The management of failed financial institutions should assume responsibility for the failure of their companies, and further, their strict responsibilities under civil and criminal codes should be investigated. Also, it goes without saying that while sufficient consideration should be paid to the sound borrowers in good faith, the responsibilities of vicious borrowers should be strictly pursued. With the view to letting our country have a strong "heart" and have "blood" circulated to every limb in the future, I will work on revitalization of the financial system while continuing to aggressively cope with the credit crunch. The Financial System Reform, aimed at eliminating "barriers" among financial institutions and promoting the creation of a market and a system that are user-friendly and in which people have confidence is an important initiative also in the context of enhancing the international use of the yen. I will continue to promote it.

The stagnation of the economy is serious. Looking straight at such situation, I have decided to suspend the Fiscal Structural Reform Act for the time being, and will submit a bill to the next Ordinary Diet Session to this effect. Also, the basic guidelines for the budget requests for FY 1999 will be set on the premise that the Fiscal Structural Reform Act be suspended with a view to clearly explaining to the Japanese people and to the international community that all possible efforts will be taken toward economic recovery under political leadership. (In consideration of the future generations, we cannot deny the necessity of the fiscal structural reform in the medium- and long-term. Under the current situation, it is not allowed to postpone the settlement of the long-term liabilities of the former National Railway and the fundamental reform of the National Forestry Operations, including their debt program. I would like to ask the cooperation for the prompt approval of the bills that are carried over from the previous Diet session.

Furthermore, I will prepare a second supplementary budget of total projects over 10 trillion yen for this fiscal year so that fiscal spending can be continued without interruption into the fiscal year in order to promptly bring back the economy to its recovery path. In doing so, I will review public investments, considering their effect on economic recovery and focusing on areas indispensable for Japan in the 21st century, free from the traditional approach.

To promote economic structural reform, it will be absolutely crucial to strengthen the economy from the supply side, working to redress the structure of high industrial costs while boosting medium- to long-term growth. Using as a guide the process by which the United States and some European countries have rebuilt their economies since the 1980s, I will promote measures for deregulation, administrative reform, privatization of the public sector and tax system reform. In addition, I will stimulate research and development so that new industries will spring up vigorously through the constant concentration of human resources, capital and technology around outstanding ideas. I will create a society where foreign companies will move into Japan drawn by our attractive business environment. I will also push forward strongly with the fostering and promotion of venture companies and other new businesses.

With regard to taxation, I will implement permanent tax reductions which in total substantially exceed 6 trillion yen, while foreseeing a fundamental review of the tax system to construct a better one consistent with the future of our country, as well as paying utmost consideration to the economic recovery. As to personal income tax, I will reduce the maximum combined level of tax rates of individual income tax and inhabitants tax to 50%, with a view to unleashing work incentive of Japanese people. Considering the current economic situation, I do not think that the environment surrounding us will allow us to bring down the taxation threshold. I aim at the reduction in individual income tax amounting to 4 trillion yen. With regard to corporate income tax, I will bring down the effective rate to approximately 40%, after conducting a comprehensive deliberation on the matter so that Japanese companies can compete in the international market. The revision of taxation on personal income will be implemented starting from January next year and that of taxation on corporate income from next fiscal year. I will proceed with the preparations so that the related bills can be submitted to the next Ordinary Diet Session. As for the funding of the tax reduction, I will make use of deficit financing bonds for the time being, while thorough retrenchment, disposal of national property, and other efforts are being made. I believe that this should be considered in a long run in relation to the situation of economic revitalization and the progress of administrative and fiscal reform.

The employment situation is currently looking extremely bleak. All possible measures will be taken to secure employment. In addition, in order to dispel uncertainty over employment prospects, improvement of the employment environment and capacity-building measures will be actively promoted in line with changes in the industrial structure and employment practices. This will create an environment which allows diverse working styles in accordance with people's individual wishes. Moreover, in order to expand and create employment, a reliable high- speed information and communications network will be constructed and user technology will be developed to create new industries in promising growth areas such as information and communications, medical care and welfare, and the environment. At the same time, I will also push forward strongly to strengthen the foundations of small and medium enterprises, which absorb around 80% of Japan's employment, and to innovate their management methods.

Through the implementation of the measures mentioned above, I am determined to take my utmost effort, at the risk of the Cabinet's life, to bring the Japanese economy to its recovery path within a year or two.

(Realizing a better society and promoting structural reform)

Given factors such as economic and social globalization, and the swift aging of Japanese society paralleled by a falling birth rate, my mission is to transform Japan's social system, developed with a mass-production modern industrial society in mind, into one that is appropriate for the age of knowledge in the 21st century. I will carry out a number of reforms, bearing in mind the basic tenets promoted by the Hashimoto Cabinet.

In terms of administrative reform, based on the Basic Law for the Reform of Central Government Ministries and Agencies, passed at the last Ordinary Diet Session, my target is to submit, under political leadership, the necessary legislation to the Diet as early as next April, aiming to launch the transition to the new regime in January 2001. I will not retract this schedule. At the same time, I will trim down central government ministries and agencies through the creation of independent administrative corporations, a complete review of the business conducted by existing ministries and agencies, and by promoting the decentralization of power and deregulation based on a transfer from administration centering on prior regulation to that based on ex post facto checks. Through these efforts, I will seek to shorten the payroll of government officials by 20% and to cut costs by 30% over the next decade. I will also further promote the decentralization of power while clarifying the division of roles and the cost burden between central and local government, submitting to the next Ordinary Diet Session, for example, bills related to the Decentralization Promotion Plan. I will also encourage local governments to enhance their capacities and to engage in administrative reform. This will be extremely significant also in terms of revitalizing regional communities and ensuring the balanced development of national territory. Another important challenge will be realizing administration which is open to the public. I ask for your cooperation in the early approval of the Information Disclosure Act which remains under deliberation. In addition, I hope to see the early approval of the political reform-related bills and the National Civil Servants Ethics Bill, drafted by Diet members and proposed at the last Diet session, in order to garner the trust of the people in both administration and in politics, which stands in the position of leadership to direct administration.

Turning to the judiciary system, which underpins the safe livelihood of the people and fair economic activities, I will promote reform of the entire system in order to facilitate its use by the public.

If the current rapid plunge of the birth rate continues, we will see a reduction in the population which is the source of national strength, and this will have a grave impact on our social and economic future. Society as a whole should engage in developing an environment in which individuals can marry and bear children as they choose, removing the various constraints such as the economic, physical and mental burdens of child-raising, the difficulty of raising children and working at the same time, and housing problems. The Government initiated discussions by setting up a panel of eminent persons to consider responses to the falling birth rate. A wide range of people are participating in this, including those from the younger generation who are involved in child-raising. Building a society in which people can have dreams in regard to marriage and childbirth is an extremely difficult and eternal challenge. However, I want to combine the wisdom of people at all levels of society to open out prospects in this regard. This is also an important issue in terms of creating a gender- equal society, and at the next Ordinary Diet Session, I will submit the legislation which will lay the groundwork for realizing such a society.

The social security system is the cornerstone of the livelihoods of not only senior citizens, but all our people, and as such is extremely important. I will push forward reforms to ensure that while this role is being properly fulfilled, an efficient and stable system is built in response to the expected increase in the burden placed on the people by factors such as the falling birth rate and the aging of society. In terms of medical care and pensions in particular, I will ensure that concrete proposals are put forward for adequate public discussion so that we can maintain the national health coverage and pension system into the future, conducting a sweeping review of the system as a whole. In addition, the smooth implementation of the nursing insurance system will be promoted, making use also of private sector dynamism.

The very basis for a secure 21st century is for our children, bearers of the next generation, to grow up strong and spiritually rich. To this end, I will continue to put energy into promoting educational reform, developing "education of the heart" on the one hand, to allow children to extend their individuality and live their lives with confidence, fostering a rich humanity, and also realizing a school system which allows a variety of options, creating schools where teachers' autonomy and discipline is respected and promoting sweeping university reforms in order for our universities to become reputable internationally. I would like to see households, and particularly fathers, as well as local communities, taking an active role in this area.

I will also throw my weight behind urban policies, at the same time working actively on the sweeping reform of agricultural administration. Such reform will include the promotion of considerations toward formulating a new basic Act on food, agriculture and agrarian villages in order to ensure the development of agriculture, forestry and fishing and of villages involved in these industries.

Looking to global environment issues, an area of nationwide interest, I will work on the steady implementation of the Charter of Countermeasures Against Global Warming which was created in June. To deal with the dioxin issue, which has become a serious cause of concern, emissions will be reduced and surveys and research conducted. The so-called environment hormone issue will be addressed by promoting scientific analysis of the impact of this on human health, etc., while consideration will also be given to introducing a new legal framework for the safe management of chemical substances. Strong measures will of course be taken in regard to civil order issues disturbing the serenity of people's daily lives, one example of which was the recent incident in Wakayama where poison was mixed into food. On top of these, I will also promote appropriate countermeasures against organized crime and hi-tech crime using means such as illegal computer access.

(Foreign policy)

Domestic and foreign policy are two sides of the same coin. Despite the difficult situation in which the country currently finds itself, to live up to our internationally-perceived responsibilities, Japan will play a positive and sincere role in line with our standing in the international community in order to ensure Japanese security and to achieve world peace.

Japan-U.S. relations continue to be the cornerstone of Japan's foreign policy. It is vital to build strong and amicable bilateral relations across a wide range of areas such as security and the economy. It is also crucial for the two countries to work together on the various issues facing the international community. Subject to the approval of the Diet, I am hoping to have the opportunity to hold a Summit meeting with President Clinton in September. In addition, passing and approving the legislative package related to the Guidelines for U.S.- Japan Defense Cooperation, still under deliberation, as well as resolving the issues involving Okinawa, where U.S. facilities and areas are concentrated, continue to be important tasks for the new Cabinet. With the understanding and cooperation of Okinawa Prefecture, the Government will do its utmost toward implementing the content of the SACO Final Report and stimulating the local economy.

In terms of improving Japan-Russia relations, I will build on the results achieved by former Prime Minister Ryutaro Hashimoto to strengthen relations in various areas and, at the same time, do my best to see a peace treaty signed by the year 2000 based on the Tokyo Declaration and thereby completely normalize Japan-Russia relations. If possible, I would like to visit the Russian Federation myself this fall.

The peace and stability of the Asia-Pacific region are the foremost objectives of Japan's foreign policy. Accordingly, basing its efforts on the IMF-centered international framework, Japan has responded seriously to the turmoil of the currency and financial markets of the Asian countries which has caused uncertainty not only in the region but throughout the world economy. Japan will continue to play a leading role toward the economic recovery of the Asian countries, providing all possible assistance.

This year marks the 20th anniversary of the Treaty of Peace and Friendship between Japan and the People's Republic of China, and President Jiang Zemin is scheduled to visit Japan this September. As nations bearing responsibility for the stability and prosperity of the Asia-Pacific region as a whole, Japan and China must extend their relationship to further develop dialogue and exchange beyond merely bilateral ties, but with an eye also to the international community. In terms of relations with the Republic of Korea, with President Kim Dae Jung to visit Japan this fall, we will seek to build a new Japan-Korea partnership toward the 21st century and also will continue to work toward the conclusion of a fisheries agreement. Looking to North Korea, we will seek to rectify the anomalous relations between Japan and North Korea, in a manner conducive to the peace and stability of the Korean Peninsula and in close contact with the Republic of Korea and other countries concerned, while seeking to resolve the various outstanding issues.

Contributing to the peace and stability of the international community is also a vital task. Recently, in the Republic of Tajikistan, four people met untimely deaths, among them, Mr. Yutaka Akino, a Japanese citizen who had been dispatched there during my tenure as Minister for Foreign Affairs. One cannot find sufficient words to describe our sorrow at this most tragic incident, and I can only offer my deepest sympathies for the bereaved. I will intensify Japan's continuing efforts for making the Convention on the Safety of United Nations and Associated Personnel enter into effect as soon as possible, in order to provide a means of ensuring the safety of personnel taking part in United Nations peace- keeping activities and to make sure that the sacrifice of the four people was not made in vain. Moreover, recalling the precious sacrifice of Messrs. Nakata and Takata in Cambodia, I would like to make a financial contribution to the United Nations as, so to speak, an Akino Fund toward measures for the safety of United Nations personnel.

The Republic of India and the Islamic Republic of Pakistan recently conducted nuclear tests. As the only country that has experienced nuclear bombings, Japan has observed the Three Nuclear Principles and has continued to promote policies for nuclear disarmament and non- proliferation. As such, we find those acts completely unacceptable. Japan has seized every possible opportunity to express our views to the international community. We will continue to support and strengthen the non- proliferation regime, promote nuclear disarmament and take initiatives in the international community in advancing a practical approach in order to realize a nuclear-weapon-free world, above all, by holding the Conference on Urgent Actions for Nuclear Non- Proliferation and Disarmament to be established at the end of August. Japan will work to conclude the so-called "Anti-Personnel Landmine Ban Treaty" as soon as possible so that this treaty can enter into force at the earliest possible timing. Moreover, to ensure that the United Nations fulfills a role in line with the demands of the time, the reforms of the United Nations must be realized, including Japan becoming a permanent member of the Security Council.

Foreign policy results cannot be achieved simply through government efforts. With the understanding and the support of the people of Japan, I will push forward with my personal motto of foreign policy that moves hand-in- hand with the Japanese people.

(Conclusion)

Japan's economy and society still have strong fundamentals. In recent years, our foreign asset balance has outweighed foreign debt, with net assets well in the black at around a high 120 trillion yen. Extensive personal financial assets supported by high savings rates stand at around 1,200 trillion yen, and annual GDP is more than 500 trillion yen, both on a scale which places Japan second in the world. These figures would suggest that Japan's economic fundamentals are extremely robust. Japan also enjoys good social order, with education and work ethics both at extremely high levels. Japan in fact has very strong social foundations as well. I would call on the people of Japan to have more confidence and pride in their country.

With such strong foundations, if Japan can overcome the current difficult circumstances, it will once again surge forward powerfully. I believe that by establishing faith today in our country, we can ensure our peace of mind for tomorrow.

As we stand on the verge of the 21st century, I believe that the kind of country we should be aiming for is one which is not only economically prosperous but also has the trust of the international community, or in other words, a rich country which also has virtue. To ensure that the new era brings a bright world rich in hope for ourselves and future generations, I am resolved to bring together the wisdom of the people to build the next era, based on the creed of hard hands and a soft heart. I will lead the way in this endeavor, devoting my full strength to the task of remaking Japan into a country in which the people can believe and which offers them peace of mind.

I humbly ask for the support and cooperation of the people of Japan and members of the Diet.

(End)