(Provisional Translation)

Policy Speech by Prime Minister Keizo Obuchi
to the 144th Session of the Diet

November 27, 1998


As we begin the 144th Session of the Diet, I would like to give an overview of my policies for national Government.

The most important issue facing Japan is the need to strengthen the foundation of the financial system so that it functions in a sound manner and to revive the economy. The reason for convening this Extraordinary Session is to ask the Diet to hold deliberations on the supplementary budget and various measures aimed at reviving the Japanese economy.

It is extremely unfortunate that at the start of such a vital Diet session it is necessary for me to begin with a comment on the misappropriation incident surrounding the procurement of defense-related equipment. The arrest and indictment of former top officials of the Defense Agency and the suspicion of attempts to conceal evidence are events which shake public faith in government administration. I would thus like to take this opportunity to extend a sincere apology. The Defense Agency has conducted a thorough investigation of the facts involved in this incident and taken severe punitive measures, and will do its utmost to restore confidence by implementing fundamental reforms in its procurement organization and systems under a new regime. I strongly urge all government staff to never forget the spirit of serving the entire public and to carry out their jobs. I also sincerely regret that a fellow Diet member was arrested on the charge of improper use of political party subsidies and call for strict self-discipline by each politician to ensure that such incidents do not recur. I reiterate my hope for the prompt passage of the National Civil Servants Ethics Bill and the bills related to political reform, both of which have been presented by Diet members, so that the government and politicians, who are responsible for exercising leadership in directing the Government, can regain full trust and confidence from the people.

Since last summer, Japan has been struck by torrential rains and typhoons which caused damage in various regions. I would like to take this moment to express my condolences for the victims and bereaved families and sympathy for those affected by these natural disasters. The Government is doing its utmost to assist with recovery efforts and will continue working to further strengthen disaster countermeasures.

(Efforts for Revitalization of the Japanese Economy)

The Japanese economy is currently enmeshed, so to speak, in a "recessionary cycle" in which household and corporate sentiment has cooled, against the backdrop of declining confidence in the management of financial institutions, job insecurity, and other negative factors, driving down consumption, plant and equipment investment and housing investment levels. This has combined with falling land and stock prices to foster a tough business environment for companies and financial institutions, which in turn has caused a credit contraction and withdrawal of capital. In order for Japan to break out of this cycle and put the economy back on a path to recovery within a year or two, it is necessary that the financial system be quickly revitalized and that economic recovery measures, including an expansion of public investment and a permanent tax reduction, be vigorously promoted. Thus far in my administration, I have made bold decisions on a number of sweeping measures and begun the process of implementing these measures. Furthermore, this administration has prepared an emergency economic package with a total project scale exceeding 17 trillion yen, which is well over 20 trillion yen when permanent tax reductions are included, with the objective of creating one million new jobs and achieving better employment prospects through a firm commitment to creating demand which enables us to say with confidence that the economy will definitely achieve positive growth in FY1999, creating employment and business without increasing unemployment, and enhancing international cooperation. The third supplementary budget following the foregoing will be of a scale which makes the fiscal burden to be borne by the national government and local governments exceed 10 trillion yen. My Cabinet will do its utmost, putting its own fate on the line, to forcefully promote this economic package and other various measures and thereby break through the recessionary cycle, return the Japanese economy to clear positive growth by FY1999 and achieve a genuine economic revival by FY2000.

The first element of the emergency economic package is stabilization of the financial system and countermeasures against the credit contraction. In the previous extraordinary Diet session, following serious deliberation between the ruling and opposition parties, a legal framework whose mainstay consists of two interrelated key legislations, the Financial Function Revitalization Law and Financial Function Early Strengthening Law, was defined, and government guarantees of 18 trillion yen and 25 trillion yen respectively were prepared with the aim of achieving stabilization of the financial system, a concern of utmost urgency, and regaining confidence in our financial institutions both in Japan and abroad. We will implement these systems appropriately with the firm determination never to allow the financial system as a whole to fall into a state of crisis, nor allow Japan to become the epicenter of a global financial crash. In particular, the scheme for recapitalization of financial institutions seeks to create a foundation for encouraging the prompt disposal of bad loan assets and restoring the health of financial institution balance sheets, and we expect that these funds will be used effectively and sufficiently. We are also harboring strong expectations that individual financial institutions, acknowledging the social and public nature of their presence will, of their own initiative, take steps for the appropriate and adequate disclosure of information and boldly pursue strategic restructuring of business operations amid the reforms of the financial system. On its part, the Government will encourage proper operation of the scheme under the Financial Revitalization Commission, to be newly established, and will work to further bolster its capacities concerning the inspection and supervision of financial institutions.

In making efforts to revitalize the financial system, sufficient measures must be taken in addition to protecting depositors to prevent a credit contraction caused by loan contraction and withdrawals, and to ensure that credit is available for not only small- and medium-sized enterprises, but also moderately large enterprises. To this end, we will place an emphasis on loan policies to small- and medium-sized enterprises and others in examining applications for recapitalization from financial institutions. Further, we are committed to measures which respond to the credit contraction, including steady implementation of the Guidelines on Countermeasures against the Credit Crunch Facing Small- and Medium-Sized Enterprises, which provides a basis for dealing with capital demand in excess of 40 trillion yen, and securing new capital totaling over 7 trillion yen for moderately large enterprises through the expansion of loans and debt guarantees from government-related financial institutions. Also, we intend to expand and diversify existing capital supply routes, which have been primarily indirect financing, by bolstering the direct financing market through the steady implementation of financial system reforms and other efforts.

The second element of the emergency economic package is economic revival measures whose aims include a recovery of demand. These measures were formulated by taking into account the Emergency Recommendations on Short-Term Economic Policy by the Strategic Economic Council, and by giving priority to the speed of their effects, the generation of a ripple effect, and their orientation toward the future so that they would contribute to building a society befitting the twenty-first century. Currently, we plan to provide underlying support for the economy mainly by creating public demand while seeking a smooth transition to economic growth driven by the private sector to be achieved through a recovery in private-sector consumption and other means, and to promote structural reforms with the aim of building a society suited to an era of broad wisdom in the twenty-first century so that economic recovery leads to stable growth over the medium to long term.

I have long believed that the role of politics is to define a future concept for our society which enables people to have dreams and hopes on the future. This is why I recently outlined the fundamental concepts of the Plan to Double the Size of Living Space and the Industrial Revitalization Plan. Concrete details of both of these plans will be fleshed out and announced to the public before the end of January next year. The current economic package was compiled with an emphasis on "Leading the Twenty-first Century Projects" and measures to implement the two aforementioned plans. We will actively continue these efforts, transcending ministerial boundaries.

"Leading the Twenty-first Century Projects," the first pillar of the economic recovery measures, will focus on the realization of projects which encompass future requirements and provide revitalization throughout Japan in accordance with the four themes of realization of an advanced electronics-oriented nation, promotion of transportation and lifestyles of future cities, creation of a safe, secure and affordable lifestyle, and establishment of a society with stability of employment based on advanced technologies and high mobility. In particular, I intend to create an organization under my direct authority which might be called a "virtual agency" to promote projects which involve many ministries and agencies, such as those related to telecommunications, with a forcefulness unbound by the constraints of ministry and agency jurisdictions.

The second pillar is a set of measures to enhance living space. In implementation of the Plan to Double the Size of Living Space aimed at enabling the people to have more affordable and rewarding lifestyles, we will vigorously promote investment, including by taking advantage of private sector involvement, to double the amount of housing space and other high-quality living space. We will also provide strong support for Regional Strategy Plans to be prepared on themes independently selected by regions to encourage their unique development which is a source of pride. Additionally, we intend to work for a further promotion of land and debt liquidity and to provide support for stimulating the housing market and forming stocks of housing by taking broad-ranging measures in areas such as fiscal policy and taxation and with a particular emphasis on housing investment, given its large ripple effect on the economy.

The third pillar of the economic recovery measures is industrial revitalization and employment creation. We will devote our utmost efforts to the revitalization of our industry, taking into account the fundamental ideas in the Industrial Revitalization Plan which places a priority on securing quality employment through new business creation and expanding investments for improved productivity. We will seek an expansion of new business starts and promote the stimulation of small- and medium-sized enterprises. Specifically, we will plan assistance for starting new businesses and for their subsequent growth, prepare an environment conducive to revitalizing existing companies, and enhance deregulation and public support measures to promote the technological development and dissemination of fifteen new and growing sectors expected to play a leading role in future Japanese industry, as well as work to promote the commercialization of technologies possessed by venture companies as well as other small- and medium-sized enterprises. From the standpoint of achieving fast employment creation and stabilization, we will implement the Comprehensive Plan for Employment Activation. This Plan includes employment creation at small- and medium-sized enterprises, an increase in extensions of unemployment allowance periods while receiving training, and the enhancement of work skill development programs, and the establishment of a Special Fund for the Creation of Emergency Employment so as to make it possible to offer employment opportunities to middle-aged unemployed persons exactly in accordance with the employment situation. The administration has submitted relevant bills, including the New Business Creation Promotion bill, to this Diet session for the purpose of strongly promoting these measures, and I seek your cooperation for a prompt passage of these bills.

The fourth pillar is focused investment in social infrastructure. We intend to proceed with social infrastructure investments focusing boldly on areas truly necessary for the twenty-first century without being limited by traditional concepts-specifically in the areas of telecommunications, science and technology, environment, and welfare, medical care, and education-from the perspective of effectiveness in rapidly contributing to economic recovery, effect in encouraging private-sector investment, and securing regional employment on a stable basis. We are also planning to provide a focused allocation of funds to social infrastructure projects which have a rapid effect in revitalizing regional economies, giving special attention to Hokkaido, Okinawa and other regions facing particularly severe economic situations and full consideration to the realities of the hardest-hit industries, and to promote social infrastructure projects which take advantage of private-sector capital and know-how.

I will soon be submitting a supplementary budget to this Diet session which incorporates the measures just outlined, and I would like to request the understanding and cooperation of all Diet members to achieve a prompt passage of this package.

Regarding the tax system, keeping in sight a fundamental revision appropriate for Japan's future, we intend to introduce a permanent tax cut on the scale of 4 trillion yen, which includes lowering the maximum rate of taxation on individual income to 50% from next year, and lowering the maximum rate on corporate income to an effective tax rate of around 40% also from next year. As part of the tax revisions, we will give adequate consideration to the smooth operation of local government budgets. Bills which flesh out these tax revisions will be submitted to the next ordinary session of the Diet. While these permanent tax reductions will initially have to be funded by deficit-financing government bonds, we will naturally redouble our efforts to cut expenditures and proceed with the disposal of government-owned assets and, in the long term, I think it will be necessary to review the nature of fiscal resources in close connection with the state of economic activation and the promotion of administrative and fiscal reforms. Also, we intend to issue Regional Promotion Coupons to families with children below a certain age and beneficiaries of elderly welfare pensions and other schemes with the aim of giving personal consumption a boost and revitalizing regional economies.

Although the realization of fiscal structure reforms continues to be a key issue when thinking about our future society and generations, particularly in light of aging and the decrease in the number of births, we have decided to temporarily put a freeze on the Fiscal Structure Reform Law so that we can make the fullest effort possible to revive the economy, and a bill for this purpose has been submitted to the current session of the Diet. I would like to receive your cooperation for a prompt passage of this bill.

In the area of administrative reform, which is one of the most important issues for us, we are planning to submit in April next year bills to the Diet related to the reorganization of the central government ministries and agencies, which includes strengthening the functions of the Cabinet. We will do so under a political initiative with a strong determination not to fall behind the target schedule of beginning the transition to a new system in January 2001. At the same time, we will do our utmost to slim down the central government ministries and agencies through such methods as the creation of independent administrative corporations and a thorough review of work done by the government. We will strongly promote deregulation and decentralization which are inextricably related to this effort. Particularly, we intend to go even further in promoting decentralization while clarifying the roles of the central and local governments and how costs should be borne, through such measures as the submission of related bills based on the Plan for Promotion of Regional Decentralization decided last May to the next ordinary session of the Diet and the preparation of a new Plan for Promotion of Regional Decentralization by the end of this fiscal year which build on the fifth recommendation recently received from the Regional Decentralization Committee. We will also seek vigorous efforts by local government bodies to improve their organization and to promote fiscal and administrative reforms.

(Promotion of "Foreign Policy that Moves Hand-in-hand with the People")

I have long stated that domestic and foreign policy are two sides of the same coin. Given the current tough situation facing the global economy, our efforts for economic revival are extremely important to the stability and prosperity of Asia and the rest of the world, and conversely, Japan cannot enjoy security and prosperity without global stability and prosperity. Further strengthening the framework for peace and stability in the Asia-Pacific region, and especially in the Northeast Asia region which is still beset by destabilizing situations, is also an extremely important issue. Based on this awareness, I conducted a series of important diplomatic meetings this autumn, including summit meetings with the leaders of the United States of America, the Russian Federation, China and Korea, countries which play an especially significant role in global economic development and in the stability and prosperity of the Asia-Pacific region.

The Japan-U.S. relationship continues to be the axis of Japan's foreign policy. Since assuming the office of Prime Minister, I have had two summit meetings with President William Clinton at which we concurred that our two countries would cooperate closely in dealing with such issues as the severe conditions in the global economy and security in the Northeast Asia region. I would like to ask for the understanding and cooperation of all Diet members for the prompt passage and approval of bills related to the Guidelines for Japan-U.S. Defense Cooperation which is the important task to us. Also, regarding the various issues confronting Okinawa where U.S. military facilities and areas are concentrated, I will implement taking into account the result of the recent gubernatorial election, an effective local development plan by squarely confronting the severe economic and unemployment conditions in Okinawa. I will continue to work in addressing the realignment, consolidation and reduction of U.S. military facilities and areas based on the final report of the Special Action Committee on Okinawa (SACO) with the cooperation and understanding of Okinawa Prefecture.

Recently, I made the first official visit by a Japanese Prime Minister to Russia in 25 years, held a summit meeting with President Boris Yeltsin and issued the Moscow Declaration on Building a Creative Partnership Between Japan and the Russian Federation. I thus believe that the relationship between our two countries is heading toward a period of agreement through a strengthening of trust and will then proceed to a period of real action. We also make steady progress toward a resolution of the Northern Territories issue, building on the relationship of trust forged between former Prime Minister Hashimoto and President Yeltsin, through the joint establishment by both countries of the sub-committee on border demarcation, the sub-committee on joint economic activities and an agreement in principle on the implementation of free visits to the Northern Territories by former island residents and their families. I will do my utmost, through the maintenance of "constant dialogue," to strengthen our relationship in various areas and to conclude a peace treaty by the year 2000 based on the Tokyo Declaration and the Moscow Declaration.

Currently, President Jiang Zemin is visiting Japan as a State Guest, the first visit of its kind by a Chinese Head of State.

The preparation of the Japan-China Joint Declaration with President Jiang and the joint announcement of plans to strengthen cooperation as we approach the twenty-first century, in this year which marks the twentieth anniversary of the Treaty of Peace and Friendship between Japan and the People's Republic of China, represents the start of a new period in relations between our countries. I hope to achieve a further enhancement of dialogue and exchanges between Japan and China, not only from a bilateral viewpoint, but within the broader focus of international society, as nations responsible for the peace and advancement of the entire Asia-Pacific region.

Last month I held frank discussions with President Kim Dae Jung and we declared that the issue of the past should be brought to a conclusion and that the two countries would build a new partnership as we approach the twenty-first century. As someone who has been engaged in politics with an unfaltering commitment to the promotion of democracy, I could not help but be deeply moved by the speech delivered at the Diet by the President, who has truly risked his life for the cause of democracy. I hope to enhance the relationship between Japan and the Republic of Korea to an even higher dimension of friendship and cooperation based on the Japan-Republic of Korea Joint Declaration and the Action Plan. Tomorrow, I too will participate in the Japan-Republic of Korea Cabinet Ministers' Meeting with the hope of adding further to consolidating this trend. Also, a treaty and a bill will be submitted to the current session of the Diet based on the fundamental agreement reached on the Japan-Republic of Korea Fisheries Agreement which had been an outstanding issue for many years. I would like to take this opportunity to request the cooperation of all Diet members to help with the prompt establishment of a new fisheries regime.

When thinking about securing the peace and stability of the Asia-Pacific region, the recent launch of ballistic missiles by North Korea is an event which is cause for serious concern and the suspicion of "secret nuclear facilities" further heightens such concerns. Japan is responding to these issues in close cooperation with the United States and the Republic of Korea and we will continue to strive for stability in this region. Once again I strongly urge North Korea to respond constructively in addressing these international concerns and in resolving outstanding issues between Japan and North Korea. To secure the safety of Japan under these circumstances, it is necessary to make efforts on appropriate information gathering, and measures need to be taken to collect, analyze and communicate information which contributes to national security and crisis management.

Stabilizing the Asian economy is a matter of urgency. I decided to implement a new US$30 billion capital assistance scheme, in addition to the existing total US$44 billion assistance package, in response to the currency and economic crises in Asian countries. Further, we recently formulated a Japan-U.S. joint initiative for Asian growth and economic recovery and announced that Japan and the United States would play a central role in a multilateral framework to assist capital procurement by Asian countries. Along these lines, we have included as an important element of the current emergency economic package measures to stabilize the global economy and the Asian economy in particular: countermeasures against currency crises in Asian countries such as assistance on capital procurement through the establishment of an Asian Currency Crisis Assistance Fund, as well as measures which provide assistance to local Japanese-affiliated companies through the creation and expansion of financing systems by government-related financial institutions. At the APEC Summit Meeting held last week in Malaysia, I reiterated Japan's policy of providing as much support possible for the revival of the Asian economies, and this statement was greeted with appreciation and strong expectation from the other APEC leaders. Also, a meaningful exchange of views was conducted on efforts to strengthen the international financial system and restoring the Asian economies back on the path of recovery. In the middle of the coming month, summit meetings are planned in Vietnam with the leaders of the ASEAN states, and I intend to hold frank discussions on cooperation for overcoming the Asian economic crisis and the strengthening of relations between Japan and the ASEAN countries.

As part of our assistance to the Central American states which received catastrophic damage from the recent hurricane, I have dispatched members of the Self-Defense Forces for the first time as an international emergency assistance team to the Republic of Honduras. I was informed that their activities were highly regarded and received great gratitude in the region.

I am committed to promoting a "foreign policy that moves hand-in-hand with the people" and to fulfilling the role and responsibilities commensurate to Japan's position in the international community.


Even though the Japanese economy is currently faced with extremely difficult circumstances, I am convinced that we have a solid economic and social foundation and that if we boldly implement the policies I have outlined, we will return to robust growth. I call on our people to confidently move forward together.

What can we do for the Japan of tomorrow? This is a question which requires bringing together the wisdom of the people, and we must give our utmost effort to reach this goal. To this end, in the economic field for example, I am listening to the views of experts at meetings of the Strategic Economic Council which reports to me directly. Also, in order to hear the individual views of various members of the public from all walks of life, I have actively visited small- and medium-sized enterprises, welfare centers, farms and other local sites in order to gain the opportunity to listen to the opinions of workers, students, housewives and others as well as to explain my own thoughts directly. On these occasions, I have met both harsh criticism and strong encouragement, and I am determined to listen to them with modesty and to reflect them well in the process of policy formation.

Under the current trying circumstances both at home and abroad, I will seek to conduct policies in a responsible manner for the sake of the people, with the aim of achieving further development of our country and of ensuring a stable life for the people by strengthening cooperation with other political parties, by listening to various opinions regardless of party lines and by searching for agreement. I would like to close by asking for the support and cooperation of the Japanese people as a whole and members of the Diet from all parties and groups.