FREE ESSAY ON JAPANESE ECONOMY

JAPANESE ECONOMY

The Japanese economy is the second largest in the world, behind only the American economy.
As such, its decade long downward slide has many lessons the American economy can learn
from. The difference between the economies is one of degree, not type. Our own economy
has been faltering of late, bringing fear of recession. The Japanese have been on that
road for over ten years, and of late have been making aggressive moves towards a
restructuring. This paper will look at the types of reforms planned in the Japanese
economy, and more importantly if these reforms will be enough to pull a modern economy
from the doldrums.
The current state of the Japanese economy has much to do with a failure to adjust. In
post-WWII Japan the country's economy experienced a bubble economy. This era of high
growth is very similar to that which the American economy experienced after WWII. A
booming population and a new focus on industry were mostly responsible for the
unprecedented growth in both countries. In the mid-1980's, Japan's central bank reduced
prime interest rates in response to what was then considered a moderate slowing. This
lowering wasn't enough to give the economy a chance at sustained growth, as it wasn't
combined with robust reform. Japanese banks took advantage of the low rates, and began
taking on massive debt. The slowdown never truly stopped, though there were quarters of
greater growth. Though the economy grew by one percent on average, the combination of out
of control debt and little population growth led the economy down a path of ever slowing
growth. Today this debt, coupled with distrust of banks by depositors, has held back even
the most well though out and well intentioned reform. Simply put, no restructuring can
lead to real gains if the banks continue to fall behind on debt payments.
In April, the normally optimistic Central Bank of Japan issued a report downgrading its
forecast for the Japanese economy, the third straight month it has done so. This was also
the first report since September 1995 that the admitted that the economy is in a state of
deflation. Deflation is the lowering of prices, and leads to lower corporate profits
across the board. Deflation has a crippling effect on an economy, and demands an
immediate and strong response. The report attributed this most recent downturn to lower
industrial output and corporate investment (AP, April 13). Though this report was an
improvement to the normally unrealistic forecasts from the bank, the Central Bank's
response to the downturn is anything but realistic. The bank lowered already low interest
rates to an effective rate of zero percent. In a familiar scenario, this has led to
Japanese banks stampeding to get even more loans. 
The Central Bank of Japan sees this as but one step in their new, more aggressive stance.
They are to be applauded for this, as it involves coupling the lower rate with economic
packages designed to give Japanese firms a way to upgrade their devalued equipment, thus
boosting industrial output. One package set a two-year deadline for major banks to
dispose of their riskiest bad loans. These loans were taken out by the banks during the
easy lending period of the mid-1980's. In the view of many economists, these loans are
the very thing crippling the Japanese economy and holding the country back from a
successful turn-around (The 21st Century Public Policy Institute, 1998).
It seems that it would have been more appropriate for the Central Bank to hold prime
rates at the previous level. This, combined with the deadline for repayment of the
riskiest debt, may have been just what the economy needed to attain serious growth. As it
stands, however, there exists no plan to hike the rate back up. The rate lowering has
already had negative effects. The Nikkei, Japan's main indicator of investment health is
in danger of falling to a 16 year low. It appears that even the banks and investors know
that the rate, though inviting, is not appropriate for long-term growth.
Weakness in the stock-market, massive bad debt, and slowing demand for Japanese exports
led 
Economic Minister Taro Aso to say that a recession is possible in the months ahead. He
then asked the government to consider spending even more in an attempt to boost growth.
This seems an obvious tactic, and one that cannot compete with ever growing bank debt.
Again, this package holds promise if implemented with a decrease in debt. 
Last week, the Central Bank governor, Masaru Hayami, said growth has come to a standstill
because of slowing exports (Reuters, April 10). This is in major part because of the
weakness in the stockmarket, which stems from reaction to the lowering of the prime
interest rates. It seems no economic entity, from investors to depositors to the banks
themselves see positive results coming from giving free money to the major banks.
The Japanese economy needs overhauls, and the Economic Ministry has acknowleged this by
taking steps towards robust recovery packages. But why would they couple these reforms
with a zero percent interest rate. They see this a way to rebuild firms by allowing those
firms to invest in new machinery and new industries. They believe firms will be able to
jump into these new industries without fears of lack of funding. Though an important
facet of recovery, these reasons pale in importance to simply reducing bad debt. All the
new industries in the world cannot make up for bad debt. Even through the 1990's, with
perhaps the most important new economy - software - being heavily invested in, Japan was
unable to maintain growth. The same will happen now if banks are not pushed into repaying
their bad debt. There is no substitute.
Bibliography
April 13 TOKYO (AP) - The Japanese economy is weakening, dimming prospects for recovery
from the nation's worst slowdown since World War II.
The government on Friday lowered its assessment of the economy in its monthly report for
April. It was the third consecutive month that Japanese authorities have downgraded its
economic outlook and the first time since September 1995 that it has said in a monthly
report that the economy is weakening.
The report from the Cabinet Office said slowing output at factories and mines and
shrinking corporate investments are hurting the chances of a rebound.
It said the economy suffers from moderate deflation -- or continuing price declines. It
was the second straight month the government warned of deflation, which can lead to a
downward spiral of corporate profits and income.
Economic Minister Taro Aso said that a recession is possible in the months ahead. He
urged the government to consider an extra budget to boost growth.
Last week, the central bank governor, Masaru Hayami, said growth has come to a standstill
because of slowing exports.
Worried about the stagnant economy, the Bank of Japan moved to push interest rates to
zero last month. It decided to keep such monetary policy unchanged at a meeting Friday.
Exports have long been the driving force behind Japan's economic growth. But the cooling
U.S. economy has dampened demand for Japanese exports.
Japan unveiled an emergency package earlier this month that set a two-year deadline for
major banks to dispose of their riskiest bad loans estimated at $104 billion.
The non-performing loans -- a leftover from the collapse of Japan's easy-lending
conditions of the late 1980s and early 1990s -- have crippled the nation's economy.
The April report pointed to five key areas of the economy that remain troubled --
industrial output, corporate profitability, business sentiment, employment and housing
construction.
Late last year, Japan set a target of 1.7 percent growth for fiscal 2001 through the end
of next March. But some economists believe the forecast is too optimistic. For the fiscal
year ended last month, the government has set a target of 1.2 percent growth.
Japan nears economy plan
Policymakers working to combat bad bank loans, stock weakness
April 3, 2001: 8:09 a.m. ET 
TOKYO (Reuters) - Japanese policymakers drew closer Tuesday to an agreement on measures
to remove two long-standing obstacles to an economic recovery -- banks' mountainous bad
loans and stock market weakness. The ruling coalition government is expected to finalize
by Wednesday a package centering on steps to help banks dispose of their non-performing
loans and a special fund to absorb sales of shares held by banks. While the deadline was
self-imposed and officials have been reluctant to guarantee it would be met, at stake is
the credibility of political and financial leaders who have been unable to pull the
nation out of economic doldrums for a decade. The country's benchmark Nikkei share price
average, which shot up more than 3 percent at one point Tuesday on optimism about the
economic package, risks a retreat towards last month's 16-year lows if no credible deal
is reached. One key point of contention has been whether taxpayers' money should be used
by a proposed fund to buy shares from banks. The Financial Services Agency (FSA), Japan's
financial regulator, had been reluctant to channel public funds into the body, saying
government intervention in the market should be as limited as possible. But a member of
the coalition panel studying the issue said the gap was narrowing. The FSA seemed to have
leaned closer toward us, although there are still some differences, he told reporters.
The coalition has changed the name of the proposed body to a fund to acquire banks'
shareholdings from a more crude stock-buying fund, specifying that the aim was to help
banks unload massive shareholdings, losses in which are squeezing their capital adequacy
ratios and throttling lending. The banks have built up huge portfolios of shares in group
companies and their clients as a means to cement business ties, but the drop in Japanese
share prices over the last decade has brought calls to limit banks' shareholdings. The
Nihon Keizai Shimbun financial daily reported earlier this week that ?15 trillion, or
$119 billion, of funds from the state-backed banking safety net, the Deposit Insurance
Corp., could be channeled to the proposed stock-buying body. The government is scheduled
to hold a meeting of its emergency task force on economic measures Wednesday morning if
agreement can be reached with the ruling coalition parties on Tuesday, an LDP official
said. 
Copyright ? 2001, CNN America, INC.
ALL RIGHTS RESERVED 
April 16, 2001
Web posted at: 3:11 PM HKT (0711 GMT)
TOKYO, Japan -- Japan's central bank said Monday that declining exports and production
have further weakened the economy. 
The Bank of Japan has been gradually downgrading its monthly report since late last year.
In last month's report, it said the recovery had come to a pause. 
In this month's report, the bank said the economy had entered a state of adjustment as
production declines and exports fall. 
Japan has been fighting a slowdown for more than 10 years. The Japanese government
acknowledged last month that the nation was in a state of deflation for the first time
since the end of World War II. 
Deflation, or continuous falling prices, can set off a dangerous downward spiral of
declining profits and income likely to further damage economic activity. 
There is also a political hiatus following the announcement by prime minister Yoshiro
Mori that he will step down this month. Several candidates, including former prime
minister Ryutaro Hashimoto, are bidding to succeed him at a vote for the Liberal
Democratic Party presidency on April 24. 
Business confidence in decline
Earlier this month, the Bank of Japan's separate tankan report showed that business
sentiment deteriorated in the January-March quarter as companies hurt by plunging demand
both at home and abroad were forced to slash spending. It was the first time in four
quarters that the survey's key indicator was negative. 
Last week, the government downgraded its official assessment of the economy for the third
straight month, saying it is weakening. It was the first time since September 1995 that
the government used the word weakening in such a report. 
Recent forecasts by the World Bank and the United Nations suggest Japan's economy will
grow at about 1 percent this year and stay flat in 2002. The central bank lowered
interest rates effectively to zero last month to try to revive economic growth. The
economy has been sluggish partly because of the massive bad debts remaining at Japan's
banks. 
The U.S. slowdown has also hurt efforts at recovery by reducing demand for Japanese
imports. 
Japanese consumer spending also has been lagging as people grow increasingly worried
about job security and opt to save rather than spend. 
The Bank of Japan said the U.S. and other economies were expected to begin a gradual
recovery from the second half of 2001. 
If this happened, exports were expected to underpin the Japanese economy once again,
helped by the depreciation of the yen. 
But it warned there remained the possibility these other economies would undergo a
prolonged slowdown, with negative effects on Japan. 
A Prescription for the Revitalization of the Japanese Economy
October 23, 1998
The 21st Century Public Policy Institute 
The current state of the Japanese economy
The history of capitalism in the world spans over two and a half centuries, and during
this time, the question has arisen time and again of what blockages occur when the main
constituents of society and the economy fall into a state of mutual distrust. As the
Japanese economy generally enjoyed buoyant growth after the Second World War, it was
widely believed that distrust between financial institutions, distrust of banks by
depositors and of businesses by banks, and distrust between businesses concerning
settlements and payments could never arise. Nevertheless, since last November just such a
blockage caused by mutual distrust has been observed and eating away from within at the
Japanese economy, engulfing the economy's main constituents one after another. As a
result almost unlimited liquidity preference prevails in the Japanese economy for the
first time in the past half century of so of economic history of which we have direct
knowledge.
The measures to boost the economy with which we have become familiar were designed to
stimulate the aggregate demand. As the economic slump has dragged on since 1992, economic
policies picked out and packaged by piecemeal from one category of demand push measures
after another have been successively adopted. However, these economic policy packages has
remained to be powerless and the ineffectiveness has led to it being said abroad that
Japan is suffering from package fatigue. The policy packages introduced up to now in 1998
have swollen to the size as large as ?16 trillion, but the continued fall of the yen and
share prices is indicative of how strong distrust of such packages has grown. A common
thread running throughout our recommendations is the advocacy of a policy package aimed
at diminishing the liquidity preference of the main constituents of the economy. At the
same time, we also propose that incrementalism which governs the government budget
compilation for the half century, that only the increments are subject to review, and the
Hegelian view that that which exists is rational should be done away with, to be replaced
by a public policy framework which accords with the wishes of the Japanese people and
restores the nation's economic vitality as we approach to the 21st century. In order to
simultaneously pursue these objectives, a wide variety of public policy measures must be
put in place. If we are to leave an economic legacy for future generations of which we
can be proud, we should be thinking three years ahead. Now is the time for us to decide
what visions Japan should pursue in the 21st century.
Policy recommendations
Injection of public funds in accordance with market principles
? The injection of public funds into banks to boost their capital under the Financial
Recapitalization Law should not be implemented on a compulsory basis by the Government,
but should instead be conducted in accordance with market principles. 
? Banks seeking to engage in international banking should be required first to raise
capital in the market by such an amount that is required to maintain their BIS based
capital adequacy ratio at least as high as 10%. Injections of public funds equal to
around five times the sum of the capital increase should be then conducted
unconditionally to banks which successfully increase their capital stock. 
? As new shareholders will inevitably play an important role in disciplining the bank
managers (including the pursuit of managerial responsibility) in that process, the
government should not become involved. 
Share purchases by the state
? A special account should be established for the purpose of purchasing shares to
maintain transparency and accountability, and a committee of financial experts set up as
its decision-making body. (The committee chairman should be a minister of state.) 
? Subsequent to formulating purchasing plans, the committee should consign the purchasing
and management of shares to an operator selected by tender. 
? Purchases should total ?30 trillion. The monthly target for share purchases should be
?1 trillion, and the total amount of purchased shares should not exceed approximately 10%
of the total market capitalization. The funds for share purchases shall be raised through
government bonds. 
? Purchases of shares should be regarded as an emergency measure to cope with exceptional
circumstances refereed to as market failure, which are caused by mutual distrust. New
purchases should be concluded by the end of March 2001, and the balance not subsequently
increased. 
? In the interests of taxpayers, the committee should report its operating status and the
financial results of the special account to the Diet. Diet approval should be required
for appropriation of profits, etc. 
Development of an entrepreneur-friendly tax system
? We should accept that in the coming economic recovery phase employment might not
increase proportionately. In order to cope with such a new type of recovery, the tax
system needs to be reformed to encourage animal spirits of entrepreneurs more
aggressively to establish new businesses. Reforms should include reducing taxation on
capital gains, abolishing securities transactions tax and bourse tax, eliminating double
taxation of dividends, and introducing a consolidated tax return system. 
? In addition to abolishing special taxation measures and the like and switching to a
simple and incentive-neutral system of corporation tax, the corporation tax rate should
be lowered. 
Reform of taxation and review of the employment safety net
? For the purpose of improving household consumption and consumer sentiment through the
elimination of unease over future prospects, a simple and highly equitable system of
personal income tax must be introduced. 
? In conjunction with the above, the public pension system must be privatized so that
people are allowed to save as much as they believe they will require to support
themselves in old age based on the principle of self-responsibility. 
? The employment safety net should be reviewed; instead of the existing system of
employment stabilization programs intended to stabilize employment through the subsidiary
payment to the firms, greater emphasis needs to be placed on an unemployment benefit
system which helps workers move between firms. 
Greater efficiency of public investment
? Although the demand for a rough budget estimate for fiscal 1999 does represent a step
toward the allocation of priorities for public investment directed mainly at urban public
works, a serious attempt still needs to be made to further improve the efficiency of
public investment. 
? To this end, the land compensation system must be reviewed and an environment developed
which allows for thorough pre- and post-investment cost benefit analyses, the disclosure
of the results of such analyses, the transfer of sources of tax revenues to the regions,
and public investment which suits regional circumstances. 
Privatization of postal savings
? Government financing in the form of postal savings is not only absorbing funds on the
basis of higher reputation of the state and thereby accelerating private financial
institutions fund shortage, but is also seriously distorting the public's awareness of
the risks associated with money management and the allocation of financial resources in
Japan as a whole. 
? In order to rectify this situation, it is proposed to the Government and Diet that
postal savings be privatized by the time of the April 2001 when payoff of deposits at
failed banks will be started. 
http://www.kantei.go.jp/foreign/senryaku/intro.html
Strategies for Reviving the Japanese Economy
Introduction
1. Assessment of the Current Economy
The Japanese economy has begun to show some signs of change as the effects of recent
large-scale economic packages have gradually helped to stop the severe economic downturn.
But despite this progress, private demand as a whole remains stagnant. Therefore, the
economic prospects for self-supported recovery are still uncertain once the economic
effects of the last packages have phased out. The fundamental problems pertinent to the
weak economy are twofold. First, the true adjustment of the burst of the bubble economy
is still insufficient. Second, against the background of the sharp decline in the number
of births and the rapid aging of the population, the pace of which has not been
experienced in other industrialized nations, the Japanese system--the engine of the
country's astonishing high growth in the postwar era--has turned problematic with regard
to economic growth.
First, fears about employment prospects, future pension plans, and the sharp rise in
government deficits are obviously restraining an economic turnaround. These fears are
attributable to eroding sustainability in the Japanese-style wage and employment systems
and the generous social security system. To cope with the situation, provisions of
renewed safety nets are urgently needed. Furthermore, the rising fiscal deficits are
restraining economic upturn by making people serious about future tax hikes and raising
long-term interest rates. Measures to restore government fiscal balances in the medium
and long term are also required.
Second, the Japanese social system, which has looked highly on across-the-board equality,
has generated a bloated public sector and inefficient resource allocation. Typical
examples are excessive regulation, overprotection, lack of self-reliance, and the convoy
system. To cope with these problems, a new system needs to be built in which all
production factors such as capital, labor, and land should be best allocated in a more
efficient way through fundamental reforms in the public sector and full utilization of
the market mechanism.
Third, a Japanese management style that depends on unrealized capital gains has become
obsolete by international standards, and has made the new challenge difficult. The
Japanese financial system of indirect financial intermediation, which is based on land as
collateral, has been malfunctioning. A new business management as well as a new financial
system that will fit the Japanese economy in the 21st century need to be established
early, so that the abundant savings of Japan are best mobilized for economic development
in the next century.
Households and enterprises have lost confidence in future sustainable growth. Moreover,
they have given less credence to government policies. The combination of all of these
factors underlies the current economic deadlock. Severe economic and financial situations
are expected in the short run, including, for example, rising deflationary pressure
during the process of complete settlement of the bubble economy, and remaining unease
regarding the financial system. To cope with them, it is necessary to restore confidence
immediately by prompt policy action. For this purpose, strengthening safety nets in
employment and raising expectations of economic growth through structural reforms are
urgently needed. It is important to recognize that the revival of the Japanese economy is
indispensable not only for our country but also for Asian economies and the global
economy, much of which are pursuing sustainable and stable growth.
2. Strategies for Reviving the Economy
Based on this assessment, the Economic Strategy Council believes that a new economic
system of Japan needs to be built in which people will be able to recover confidence
toward the future. To this end, fundamental structural reforms in both the public and
private sectors are indispensable and require strong political leadership, entailing a
bold review of all existing systems without exception. Without them, reviving the
Japanese economy is hopeless.
While credit crunches and credit contractions are said to be rampant, the financial
fundamentals of Japan remain strong. The evidence is that household financial assets now
amount to 1,200 trillion yen, and net external assets exceed 100 trillion yen.
Furthermore, many manufacturing companies, including small and medium-sized companies,
maintain a global competitive edge in the fields of semiconductors, liquid crystals, and
precision machines. The Japanese economy still enjoys a high-quality and diligent labor
force supported by internationally high standards of education. This indicates that the
development base for further growth remains sound and safe. What is needed is the quick
reformation of the old, malfunctioning system into a new one in which the merits of the
incumbent system are reserved and the potentials of the Japanese economy are made best
use of. Recognizing this, the Economic Strategy Council proposes the following five
recommendations as strategies for economic revitalization.
(1) Scenarios for Economic Recovery and a Road Map Toward Sustainable Government
Balances
The first recommendation is to show clearly the scenario for economic recovery, and to
eliminate fears held by both ordinary people and the market of a fiscal crisis. The
Japanese economy has maintained its potential growth rate of slightly over 2 percent per
annum. By completely clearing the legacy of the bubble economy and by indicating to
people the bold steps of structural reforms, it may be possible to recover expectations
on future growth. If that happens, the economy would be able to shift to a true recovery
path within two years.
On the other hand, the government balances of both the central and local authorities are
worsening greatly due to recent large economic stimulus packages and to declining tax
revenues under a stagnant economy. Early restoration of these deficits will not be easy.
However, the medium-term sustainability of the government balances could be regained
through vigorous efforts, including bringing the economy into a sustainable growth path
with structural reforms implemented, reducing the size of government by significantly
cutting spending, selling and efficiently allocating state property, and rationalizing
tax bases. The government needs to relieve the worries of people and the market by
publishing credit-worthy, medium-term projections of economic growth and government
balances.
(2) A Competitive Society with Soundness and Creativityand Preparing Safety Nets
The second recommendation is to build a competitive society with soundness and creativity
and to leave behind regulations, excessive protection, and theconvoysystem. The Economic
Strategy Council judges that the economic revival of Japan would be impossible without
reforming the current employment system of government employees, strongly implementing
various institutional reforms including deregulation, improving the accounting methods in
the public sector, fundamentally restructuring the Fiscal Investment and Loan Program,
and streamlining the bloated and inefficient governments. At the same time, institutional
reform is to be done to reorganize the local government system to help economically and
financially sagging local areas to become self-supporting. Furthermore, reforms involve
the taxation system, which should reward the hard worker, and an overhaul of the
education system to cultivate human resources of creative talent. All of these point to
the need to build a new system to enhance individual incentives and to motivate their
creativity.
For the effective functioning of this new system, it is required to prepare safety nets
that will match a competitive society with soundness and creativity. Such nets will give
those who have failed a second chance, and will warrant security. Relevant are the labor
market reforms to enhance employability and job security, judicial reforms consistent
with a new society of ex post facto checking of consequences, creating a sustainable and
reliable social security system covering pensions, medical services, and nursing care.
These measures should provide citizens with safety nets.
(3) Complete Settlement of the Bubble Economy and the Establishment of a Financial System
for the 21st Century
The third strategy is to bury the legacy of the bubble economy in all fields and to
reform the financial system, which has been excessively dependent on indirect financial
intermediation, into one appropriate for the 21st century. The complete settlement of the
bubble economy means that the reorganization of financial institutions needs to be
facilitated, and that the real disposal of bad loans, i.e. liquidation of real estate
collateral, must be promoted. To this end, it is urgent to establish a new system and
revised institutions. These disposals hinge critically on whether property liquidation
and securitization, including good real estate, can lead to a transformation of
non-performing assets into cash-generating productive assets.
On the other hand, to revive the Japanese economy, it is important to immediately
restructure the malfunctioning system of indirect financial intermediation. The critical
question is how a new financial channel will be established whereby household financial
assets of 1,200 trillion yen are efficiently geared to strategically important industries
which are indispensable for economic revival. In other words, it is necessary to
complement and replace the indirect financial channel of Japan--the core of which isthe
land sovereignty--with renewed financial intermediaries. Needs for financial services
vary, and increased demand is expected around the turn of the century. The flourishing of
newfinancial industriespreparing for these needs necessitates an efficient financial
system of global standards, involving financial markets, regulation, legal frameworks,
taxation, and accounting.
(4) Industrial Revitalization With Vigor and International Competitiveness
The fourth strategy is to prepare as quickly as possible the frameworks for industrial
revitalization with vigor and international competitiveness. To this end, the government
needs to provide an environment in which companies will be able to eliminate excess
business machinery and invest their resources heavily in promising industries. The
important points are fostering an environment in which failed entrepreneurs can try
again, activating the replacement of old industries with new ones, enabling challenges
for new businesses, supporting the reorganization of enterprises and the introduction of
new management, and providing an environment in which management resources are poured
into promising industrial sectors. Last but not least, comprehensive packages are
indispensable for championing strategic industries for 21st century, for involving
technological development, for deregulation, for obtaining global standards, and for
implementing leading national projects in which private initiatives are fully utilized.
(5) Strategic Infrastructure for the 21st Century and Regional Revitalization
The last recommendation is to provide strategically important infrastructures for
revitalizing the economy and realizing a higher standard of life in the 21st century. The
next decade ought to be earmarked as an intensive period to invest in future-oriented
social overhead capital. The government must deal with this investment in a comprehensive
manner without lapsing into sectionalism. Public works projects need to be reviewed in
terms of regional strategy, fund allocation with fairness and transparency, and best use
of private initiatives like PFI (Private Finance Initiative). The strategic projects
include urban revival, environment, information infrastructure, education and human
resource development, social welfare, and housing. These are of highest importance to the
government for the 21st century. Investment there should lead to new business creation
and revitalization of local economies, and allow for the maximization of private
initiatives.
3. Toward a New Growth Era
The structural reforms fully elaborated in the following chapters, based on these
recommendations, will succeed in revitalizing the Japanese economy in the 21st century if
implemented steadily. It is not a groundless hope to enter a new growth era. Structural
reforms both in private and public sectors will help to lift the depressed sentiments on
the future economy and to shape the optimum allocation of management resources such as
human resources, goods, and money. Free and creative activities within the private sector
will expand Japan's economic frontiers and enable its economy to encourage fruitful and
meaningful lives for citizens.
The efforts to open the way for the brilliant future and create an attractive country
should be supplemented by the positive attitude of people to boldly enter unknown fields
without fearing the pain attached to reforms. Politicians, the private sector, and the
government need to be brave enough to initiate unprecedented reform. They should not sit
back, afraid to move forward because of lack of experience. The role of the government is
to become a flagship for the reforms and to strongly support the initiatives of the
private sector for them. The Economic Strategy Council will, herewith, draft visions and
reform processes for the medium and long-term that could build an energetic society with
freer choices and more creativity. At the same time, we hope that today's younger
generation--who will soon become the core of political, economic, and social life in the
21st century--will imagine a promising future with this report.
4. Steady Implementation of Recommendations
The Economic Strategy Council has agreed to providethe List of Laws Relevant to
Recommendationsand strategy steps for the steady implementation of this report. They are
expected to help the understanding of concrete ideas concerning recommendations spelled
out in the following chapters. 
(1) The List of Laws Relevant to Recommendations
The Economic Strategy Council conducted research on laws including possible new ones that
may be relevant to recommendations in this report. It may become a valuable reference
tool for those interested in this subject. The result is attached in reference 1the List
of Laws Relevant to Recommendations. It should be noted that all recommendations do not
necessarily correspond to a certain law, because the implementation is associated with
not only a law change but also budgets, cabinet orders, and ministry rule. This list
needs to be refined further, with the help of experts in the field.
(2) Strategy Steps for Implementation
The Economic Strategy Council has decided to indicate strategy steps for economic
revitalization; these steps help to clarify the priorities to implement the main
recommendations in this report.
Based on the economic recovery course in the next decade, the implementation period is
divided into three sub-periods: 
1) stage of complete settlement of the bubble economy--around FY1999-2000
2) stage of return to a growth path and economic rehabilitation--around FY2001-2002
3) stage of full-fledged economic revival through fiscal consolidation and structural
reforms--around FY2003- 
Considering the above strategy steps, the Economic Strategy Council has summarized the
priority of necessary strategies for economic revival in reference 2. Recommendations are
classified into three categories there:1) policies with the highest priority for economic
recovery and financial stability, 2) structural reforms to be implemented as soon as
possible regardless of the economic trend, and 3) reforms to be initiated after
full-fledged economic recovery. The Council expects reforms to be carried out, taking
this classification into full account.