Annual Report on the Japanese Economy and Public Finance 2006

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The Japanese economy finally managed to overcome the long-term stagnation, which lasted more than 10 years, and has become able to see bright prospects in the future. Japan encountered an "Economic Crisis," where the so-called bubble economy burst in the beginning of the 1990s, and the competitive environment changed significantly under the global economy. Ordinary citizens and individual companies and business people have struggled to overcome these difficulties at their individual places of duty. With the government's efforts for structural reform, in addition to these efforts by individual citizens, the Japanese economy has been recovering to a "peacetime" situation. It is now more than four years since this economy recovery started in early 2002.

This White Paper multilaterally analyzes the current status of the Japanese economy of which recovery has been long-lasting. The corporate sector facilitated restructuring measures positively in employment, and paid debts by refraining business investment, in order to overcome the aftereffects of the collapsed economic bubble. As a result, excess employment, overcapacity, and excessive debt were resolved, companies' profitability was enhanced, and productivity of the overall economy started to recover. As for business management, attitudes to place more emphasis on capital efficiency can be observed widely, but many companies still share features of "Japanese-style management" with a high regard for employees, even after the structural adjustment. Those features of Japanese companies are expected to be enhanced as a comparative advantage for further development. Looking at the structural adjustment implemented in the corporate sector from the viewpoint of the household sector, it brought wage cuts to full-time workers, reduction of regular employment, and denormalization of employment. However, as the economic recovery continues and its outcome spreads to the household sector, an increase in stable employment and moderate wage raises are promising signs. Meanwhile, important policy issues are revealed, such as responses to deal with the economically vulnerable, or responses to address issues of employment and skill formation of younger people, among whom NEET and part-time workers are increasing in number.

The Japanese economy seems to have regained conditions to aim for new growth. Without missing this opportunity, we need to realize "fiscal soundness" and "strengthening of growth potential and international competitiveness" at the same time, before the declining and aging of the population become even more serious. I hope this White Paper will help heighten people's recognition of the Japanese economy and finance, as well as contribute to resolving the problems faced by the Japanese economy.

July 2006

Kaoru Yosano
Minister of State for Economic and Fiscal Policy

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