Annual Report on Japan' s Economy and Public Finance 2000-2001

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Annual Report on Japan' s Economy and Public Finance 2000-2001

This Report, which was prepared by the Cabinet Office, takes a fresh look at the Annual Report on Japan' s Economy (Economic Survey of Japan) that has been published by the Economic Planning Agency over the last two quarters of a century since the end of World War II to make it appropriate for the new mission of the Cabinet Office.

In January 2001, the first year of the 21st century, the Council on Economic and Fiscal Policy was established as part of the reorganization of the central government so that the Prime Minister can exert his leadership in economic and fiscal policies. The Cabinet Office is the Secretariat of the Council on Economic and Fiscal Policy and the Minister of State for Economic and Fiscal Policy is in charge of economic and fiscal policies in the Cabinet Office and manages the Council. This Report, which analyzes the present state and problems of Japan' s economy and public finance, plays a role of supporting deliberations of the Council on Economic and Fiscal Policy from the aspect of economic analyses. It is designed to give an analytical base to the structural reform that the Koizumi cabinet is promoting.

Japan' s economy and public finance are in a severe situation. The economy is likely to have entered a recession phase. This is the third recession since the 1990s. As for short-term prospects, concerns have intensified over a simultaneous slowdown of the world economy, along with the adverse effects of the series of terrorist attacks in the United States. During the 1990s, the government implemented demand-creating measures to prop up the economy that was suffering from business stagnation. As a result, the government has been saddled with a large amount of fiscal deficits and the fiscal structure has become rigid.

In order to overcome the current weak economic recovery and deflation, and to make public finance sustainable, it is necessary to resolve the structural problems that the Japanese economy is now facing, establish an environment to demonstrate the Japanese economy' s potential, and achieve the reform of the fiscal structure. Faced with the severe situation of the Japanese economy, we should not respond with conventional demand-creating measures and postpone resolving structural problems.

This Report deals with the problems of economic re-birth and fiscal reform. I hope that this Report will help deepen your understanding of the Japanese economy and public finance and contribute to resolving these problems.

December 4,2001
Minister of State for Economic and Fiscal Policy
Heizo Takenaka

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