(Provisional Translation)

Chapter 1 Basic Principles

Based on the "Outline of Basic Policies for Macroeconomic Management and Structural Reform of the Japanese Economy," (Cabinet decision of June 26, 2001), the government committed itself to formulating a "Reform Schedule" outlining the sequence of structural reform initiatives, including medium-term measures. The Reform Schedule contains certain initiatives which must be formulated and implemented in advance of the general body of reform. These initiatives, including those measures to be included in the supplementary budget, will be brought into the Front-Loaded Reform Program.

The Front-Loaded Reform Program shall actively contain measures for regulatory reform and other forms of institutional reform. Measures requiring a supplementary budget shall be limited to highly urgent ones with a direct linkage to structural reforms. The Front-Loaded Reform Program shall exclude simple demand-increasing measures, including such public works projects, and shall focus on measures which can be expected to generate prompt and tangible results in job creation and the revitalization of private-sector economic activities.

To be more specific, this program incorporates: (1)Institutional reforms and other measures to invigorate the economy and generate new industries, challengers, and employment; (2) Measures for strengthening safety nets relating to employment and SMEs (small and medium-sized enterprises); and (3)Highly urgent measures for accelerating structural reforms.

After the examination of necessary budgetary measures based on this interim report, the Front-Loaded Reform Program will be finalized around mid- or late-October. Because the measures included in this report shall be brought into practice swiftly, legislative and budgetary measures shall be taken, in principle, the forthcoming extraordinary session of the Diet.

Promotion of structural reform planned in the report shall enable domestic demand-led economic growth. Pursuing structural reform, the government shall conduct economic management, if necessary, in a bold and flexible manner.

In addition, the government strongly hopes that the Bank of Japan will continue to implement monetary policy in an appropriate and flexible manner to deal with the current situation where prices continue to fall.

Chapter 2 Specific policies

1. Institutional reforms and other measures to invigorate the economy and generate new industries, challengers, and employment

(1) Active promotion of regulatory reform

Regulations shall be eliminated as much as possible to promote competition and invigorate so as to revitalize the economy and to develop consumer- and people-oriented social and economic structures. Particular attention shall be given to rigorously implementing regulatory reform in IT-related fields and such "people-oriented service fields" as medical services, welfare and childcare, human resources, education, the environment, and urban rejuvenation where reform has remained relatively behind. For this purpose, a maximum effort shall be made to observe "Interim Summarization concerning Six Priority Areas" of the Council for Regulatory Reform and to implement its recommendations ahead of schedule.

a. In IT-related fields, regulatory reform shall be carried out, for example, in the following areas:

• Promoting the use of under-utilized optical fiber networks;
• Facilitating the installation of optical fibers in multi-unit housing; and
• Preparing legislation for establishment of rules of responsibility for Internet service providers and others.

 Medical services

• To be announced(on September, 26)
  

• Lifting the ban on corporate management of care houses and other facilities
  
• Promoting private-sector participation in the management of childcare facilities
  
• Promoting the diversification of childcare services
  

• Legislating a special temporary bill to facilitate hiring of the middle-aged or elderly as dispatched workers
  
• Fundamentally easing regulations pertaining to employment agencies
  
• Reviewing management of the temporary job-placement system with a view to permanent employment
  

• Establishing standards of accreditation for private elementary and junior high schools
  
• Developing new types of elementary and junior high schools
  

• Comprehensive measures in preparation for the ratification of the Kyoto Protocol.
  
• Establishing measures for soil detoxification in urban areas and other areas
  

• Further disclosing real estate related information
  
• Promoting the circulation of second-hand housing
  
• Facilitating the rebuilding of multi-unit housing
  

a. Structure reform of securities markets
In line with the transition from preferential treatment of savings to preferential treatment of investment, highly transparent securities markets shall be developed to enable the general public to participate in these markets with ease. Furthermore, a tax reform proposal shall be promptly prepared.

b. Reinforcing disposal of NPLs (non-performing loans) and enhancing intermediate functions
In order to normalize the NPL problem within three years at the latest, the following measures will be taken urgently in order to intensify the disposal of NPLs and invigorate intermediate functions of finance at the same time as promoting of structural reforms in other fields:

 Enhancing availability of loans

• Facilitating loans to "healthy" customers
  

• Upgrading inspections of major banks by increasing the frequency of comprehensive inspection from once every two years to once every year
• Requesting major banks to disclose their financial statements and other information

• Making purchase price setting of NPLs by DIC and RCC more flexible, thereby disposing NPLs intensively by the end of FY 2003
• Making loans from the DBJ (Development Bank of Japan) and other public financial institutions available to companies under restructuring
• Requesting the DBJ, private investors and RCC to set up and/or participate in funds, which will buy shares issued by companies with promising restructuring plans (and obtained by banks through debt-equity swaps) and help those companies to realize the plans.

• Taking necessary measures to prevent sound SMEs from going into chain-reaction bankruptcies

(1) Employment measures

With the unemployment rate exceeding 5%, the situation in labor markets is becoming increasingly severe. In view of this fact, in addition to the implementation of institutional reforms and other measures for the creation of new employment, "the Bill for Emergency Employment Measures" shall be submitted to the next extraordinary session of the Diet and other efforts shall be made to further strengthen employment-related safety nets.

a. Improving job-placement function through utilizing private-sector initiatives
In view of increased unemployment due to mismatching in the labor markets, private-sector initiative shall be utilized to improve job-placement functions.

• Extending eligibility for employment subsidies to hirings though private job-placement services
• Strengthening supports to temporary and permanent transfer from depressed businesses
• Providing want ads on Internet
• Reinforcing function of supporting system at job-placement offices

c. Encouraging reemployment efforts and supporting lives of the unemployed
Systems for unemployment benefit payments with job training shall be substantially extended to support reemployment efforts. Support measures for employers shall also be reviewed to promote job creation in new growth areas.

A new program shall be launched to provide financial supports to the unemployed who used to be self-employed and, therefore, are not under the employment insurance scheme.

d. Employment in new types of public service
In order to cope with employment problems during a period of intensive adjustment (forthcoming period of 2 to 3 years), funding shall be established for the creation of emergency and temporary employment (jobs in new types of public services) in the public sector (including private businesses and NPOs). Such jobs shall target middle-aged and older unemployed persons and persons not receiving unemployment insurance benefits, and shall include the following: teachers' assistants at schools, support personnel for police force, and forestry workers for environmental preservation.

(2) Measures for SMEs

In conjunction with the progress of structural reform, support shall be provided for the establishment and business innovation of highly motivated small and medium-sized enterprises with outstanding potential. Appropriate steps shall be taken in conjunction with such support to avoid moral hazards. To prevent chain-reaction bankruptcies and to support business innovation among such highly motivated and promising SMEs, safety net mechanisms shall be further strengthened, including the creation of new financial measures and facilities for SMEs, esp. a loan guarantee using credit sales as collateral and a loan program for SMEs under restructuring.

3. Highly urgent measures for accelerating structural reforms

Highly urgent measures shall be implemented for accelerating the process of structural reform. The following specific measures shall be considered for the purpose of enhancing the convenience of the public, promoting human resources development in line with the advance of the IT revolution, and empowering women and other individuals and private businesses to realize their full potential.

a. Realization of electronic government

• "E-Japan priority program" and "e-Japan 2002 program" shall be actively promoted to realize e-Government in 2003.
  

• LAN system shall be developed in public elementary and junior high schools.

• The number of openings at nursery schools shall be increased by 150,000 by FY 2004 through utilizing a scheme where the public sector build facilities and the private sector manage their operations.
  
• Facilities for after-school children shall be increased by 15,000 by FY 2004.
  

• Construction of waste disposal facilities meeting a new standard (stipulated by a special law for controlling dioxin emission and other chemical substances) will be supported.

• Formation of human network between industry, university and government will be encouraged.
• Ties between research institutes, local governments and companies will be facilitated.

• Private initiatives shall be fully utilized in building or rebuilding central government offices and multi-unit houses for government officials