Annual Report on the Japanese

Economy and Public Finance

2003-2004

- No Gains Without Reforms IV -

July 2004

Cabinet Office

Government of Japan


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Introduction


    The Japanese economy is beginning to emerge from the period of long-term stagnation it faced after the collapse of the bubble economy. The economic growth rate was over 3% in FY2003, and there was a year-on-year decrease in the unemployment rate for the first time in 13 years. There has been positive forward momentum as of the middle of 2004 as well, including underlying strength in the household sector and an expansion of improvements in the corporate sector. The Koizumi Cabinet has positioned the period up to FY2004 as a concentrated adjustment period in reforms as well as a period during which to resolve the issue of nonperforming loans, and has been tackling reforms aimed at overcoming deflation and bringing about sustainable economic growth led by private demand. It appears that structural reforms have achieved a comprehensive result in removing the obstacles that have been depressing the Japanese economy for a long period of time.
    In terms of the international economy, Japan's relationship with Asian economies has changed largely with increasing significance of China, which has maintained an economic growth rate of over 8% in recent years. These Asian economies have gone far beyond being placed as export markets, overseas production hubs and sources of low value-added products for Japanese companies, with close relationships starting to be built in terms of goods, services, capital and labor force. It has been established that this trend is leading to increased exports and is having a positive effect on the Japanese economy. An important factor, however, is for Japan to make active efforts in order for this new relationship to lead to the development of Japan in the 21st century.
    Recognizing the importance of these issues, the Annual Report on the Japanese Economy and Public Finance 2004 will carry out the analysis in the three chapters below.
    Chapter 1 analyzes trends in the Japanese economy. The chapter is roughly framed into (i) how economic growth is brought about centering on private demand including consumption and investment, (ii) how the fruits of structural reform are beginning to take shape and (iii) the current status of overcoming deflation and what policy issues exist. The chapter also looks at the future outlook for the economy in terms of sustainability.
    Chapter 2 looks at the prospect for regional economic revival. Although economic indicators show that the Japanese economy as a whole has started to improve, trends in the recovery of regional economies are varied. This chapter identifies the causes of these disparities among regions and analyzes efforts for the structural reform of fiscal policy and regulations. The chapter also looks at revitalization measures which utilize the specific features of regions such as tourism.
    Chapter 3 discusses new challenges posing the Japanese economy presented by globalization, and structural reforms necessary to address these issues. As the relationships between international economies are becoming increasingly close, the behavior of companies and households has been changing significantly. This chapter analyzes these changes and looks at the economic effects they are having. The chapter also outlines issues in the areas of the status of Japan's economic partnership with Asia, agriculture, inward direct investment and foreign workers, and clarifies structural reforms for drawing the maximum benefits in terms of the international economy.
    In carrying out the analysis in these chapters, efforts were made to clarify actual trends based on the use of micro-data on households, companies and governments whenever possible. This year has been designated as the year for the completion of the concentrated adjustment period in reforms, and next year will mark the beginning of a period of strengthening efforts regarding priority issues in which full-scale efforts regarding reforms will be strengthened. This report aims to contribute to relentless efforts for structural reform through comprehensive analysis in Japan and abroad.

Column 0-1

   The Council on Economic and Fiscal Policy (CEFP)

   What is the Council on Economic and Fiscal Policy?
    The Council was established in January 2001 in order to exercise the full leadership of the Prime Minister regarding economic and fiscal policy.

   List of Members of the CEFP
   Chairman: Junichiro Koizumi, Prime Minister
   Member: Hiroyuki Hosoda, Chief Cabinet Secretary
   Member: Heizo Takenaka, Minister of State for Economic and Fiscal Policy
   Member: Taro Aso, Minister of Public Management, Home Affairs, Posts and Telecommunications
   Member: Sadakazu Tanigaki, Minister of Finance
   Member: Shoichi Nakagawa, Minister of Economy, Trade and Industry
   Member: Toshihiko Fukui, Governor of the Bank of Japan
   Member: Jiro Ushio, Chairman and Chief Executive Officer of USHIO INC.
   Member: Hiroshi Okuda, Chairman of Toyota Motor Corp.
   Member: Masaaki Honma, Professor, Faculty of Economics, Osaka University
   Member: Hiroshi Yoshikawa, Professor, Faculty of Economics, University of Tokyo

   Recent Major Activities
   May - June 2001 Deliberation of the "Outline of Basic Policies for Macroeconomic Management and Structural Reform of the Japanese Economy" (so-called 'Large-Bone Policy') (Cabinet Decision, June 26)
   August 2001 Deliberation of the "Guidelines for the Estimate Budget Request" (Cabinet Agreement, August 10)
   September 2001 Deliberation of the "Reform Schedule - Main Points" (Delivered in Cabinet, September 25)
   September - October 2001
   Deliberation of the "Front-Loaded Reform Program" (October 26)
   November 2001 Deliberation of the "Guidelines for Formulation of the FY 2002 Budget" (Cabinet Decision, December 4)
   November 2001 Deliberation of the "Immediate Action Program for Structural Reform" (December 14)
   November 2001 - January 2002
   Deliberation of the "Structural Reform and Medium-Term Economic and Fiscal Perspectives" (so-called 'Reform and Perspectives') (Cabinet Decision, January 25, 2002)
   February 2002 Deliberation of the "Emergency Countermeasures to Deflation"
   May - June 2002 Deliberation of the "Basic Policies for Economic and Fiscal Policy Management and Structural Reform 2002" (so-called 'Basic Policies 2002') (Cabinet Decision, June 25)
   August 2002 Deliberation of the "Basic Principles of the FY2003 Budget" (August 2)
   August 2002 Deliberation of the "Guidelines for the Estimate Budget Request" (Cabinet Agreement, August 7)
   October 2002 Deliberation of the "Comprehensive Measures to Accelerate Reforms" (Formulated, October 30)
   November 2002 Deliberation of the "Guidelines for Formulation of the FY2003 Budget" (Cabinet Decision, November 29)
   December 2002 Deliberation of the "Accelerated Reform Program" (December 12)
   November 2002 - January 2003
   Deliberation of the "Reform and Perspectives FY2002 Revision" (Cabinet Decision, January 24, 2003)
   May - June 2003 Deliberation of the "Basic Policies for Economic and Fiscal Policy Management and Structural Reform 2003" (so-called 'Basic Policies 2003') (Cabinet Decision, June 27)
   July 2003 Deliberation of the "Basic Principles of the FY2004 Budget" (July 29)
   August 2003 Deliberation of the "Guidelines for the Estimate Budget Request" (Cabinet Agreement, August 1)
   November 2003 Deliberation of the "Guidelines for Formulation of the FY2004 Budget" (Cabinet Decision, December 5)
   December 2003 - January 2004
   Deliberation of the "Structural Reform and Medium-Term Economic and Fiscal Perspectives - FY2003 Revision" (so-called 'Reform and Perspectives FY2003 Revision') (Cabinet Decision, January 19)
   April - June 2004 Deliberations of the "Basic Policies for Economic and Fiscal Management Policy and Structural Reform 2004" (so-called 'Basic Policies 2004') (Cabinet Decision, June 4)

   For more details, please see the website below
   http://www.keizai-shimon.go.jp
    Materials distributed at the CEFP meetings are uploaded on the website the same day, and the overview of the discussions is uploaded three days later.
   


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