Annual Report on the Japanese

Economy and Public Finance


- No Gains Without Reforms IV -

July 2004

Cabinet Office

Government of Japan

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   Annual Report on the Japanese Economy and Public Finance 2003-2004
    The Japanese economy is continuing its recovery led by private demand centering on investment and consumption. Two and a half years have passed since the economy entered a recovery phase, and the average growth rate during this period has reached 3%, highlighting the robustness of Japan's economic recovery against that of other advanced countries.
    The Koizumi Cabinet was inaugurated at a time when Japan was facing a difficult economic situation, and during the three years following its inauguration, the Cabinet put all efforts into advancing structural reform under the principle of "No Gains Without Reforms." The government has so far steadily advanced the disposal of non-performing loans, engaged in wide-ranging initiatives for deregulation, and restructuring and revitalization of corporations, and promoted reforms of the expenditure and tax system as part of the structural reform. As a result, the buds of structural reform are coming to be seen and the problems that slowed down the economic development of Japan after the collapse of the bubble economy are gradually being solved. In particular, significant progress was made in balance sheet adjustment, reflecting the advancement in reduction of excessive debt and rise in returns, helping enterprises improve their performance. Such positive developments in the corporate sector are extending into the households.
    However, there are discrepancies in the pace of recovery of regional economies, and, compared to large enterprises, small and medium enterprises (SMEs) are still facing serious difficulties. Therefore, it is extremely important to spread the recovery trends throughout the regional economies and SMEs, and to ensure that they will result in sustainable and steady growth. Towards this end, it is necessary to implement full-fledged efforts to revitalize regional economies and to respond in a flexible manner to the globalization trends. Some regions are already proactively addressing the issue of globalization and are venturing into new opportunities, but there is still more room left for revitalization efforts. Improving the vitality of regional economies and responding to the globalization trends will increase the potential powers of the Japanese economy. The Government must further enhance its efforts towards structural reform under the policy of "from public sector to private sector" and "from the state to the regions," and nurture the buds of reform into a large tree.
    Based on such recognition, the Annual Report on the Japanese Economy and Public Finance 2003-2004 discusses measures to spread the benefit of reform throughout Japan and to put the Japanese economy on the path of sustainable growth. The goal of this report is to provide an analytical basis for the structural reform and the policy management that are being promoted by the Koizumi Cabinet. It is my hope that this report will help people gain a better understanding of the Japanese economy and public finance and contribute to resolving these problems.

   July 2004

   Heizo Takenaka
   Minister of State for Economic and Fiscal Policy

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