On the Mission of the "Council on Economic and Fiscal Policy" in Japan

Jiro USHIO (Chairman and Chief Executive Officer, USHIO INC.)

Who Owns the Spectrum in Japan?

It is my honor to be selected as one of the four private-sector representatives, along with five politicians (ministers) and the president of the Bank of Japan, to form the Council on Economic and Fiscal Policy, which was set up within the Cabinet Office as part of Japan's administrative reorganization in January this year. The mission of this council, as I understand it, is to steer Japan's economic and fiscal policies in the right direction and thus to strengthen the function of the Cabinet Office in formulating economic policy and fiscal planning. In my view, our discussion at the council should be focused on the main framework for economic policies in the next five years to deal with various issues which the Japanese economy is facing.

The Importance of the Employment Issue

The most important issues surrounding Japan are a slowdown in the U.S. economy and the necessity of Japan's rapid economic recovery. For that purpose, we need to prioritize policy issues and measures. Personally, I would like to take up the employment problem as the top priority issue. That is to make the labor market more fluid, where labor becomes more mobile, and to increase employment for economic revitalization. Increasing the amount of employment seems to me to be more important than increasing the value of GDP, and the government should adopt employment as one of the policy targets. In this connection, it is vital for us to grasp the true figures of employment, consumption, etc., since I feel that the government's economic indexes often fail to reflect the actual condition of the economy, leading to the wrong prescription for Japan's illness.

Of course, the crucial question is how to increase employment itself. A typical answer might be to foster IT-related industries, but those industries have begun to slow down significantly in the U.S. as well as in Japan since last year. Therefore, we may not be able to depend on IT-related industries for the creation of employment in the future. Instead, we should try to develop entirely new industries in Japan, but I don't know what those new industries will be yet. I would like to discuss this issue at the Council on Economic and Fiscal Policy

As for the existing industries in Japan, we need to strengthen their competitiveness and deal with the high cost structure. One way of doing this is to adjust the exchange rate to reflect the true purchasing power of the Japanese currency. It is my opinion that the exchange rate should be somewhere around 160 yen per dollar to truly reflect the yen's purchasing power. If such a rate were realized, many of the existing industries in Japan could regain their competitiveness and the general cost level would become significantly lower than it is now, relative to costs overseas. But at the same time, one has to take account of possible demerits for such a low value of the yen. In any case, the exchange rate issue is quite important, and it should be thoroughly discussed at the Council on Economic and Fiscal Policy.

In the meantime, we have to deal with the stagnant stock market in Japan to avoid another financial crisis. We can revitalize the stock market, not by adopting PKOs (price keeping operations), but rather by facilitating the introduction of the Japanese version of 401k and, if possible, allowing it to invest in its own company stocks (ESOP). Such measures will help increase the number of buyers in the stock market, leading to the revitalization of the stock market.

Towards Project-Oriented Public Investment

It might be asked what kind of approach should be taken towards the issue of fiscal reform vs. economic stimulus policy at the Council on Economic and Fiscal Policy. My answer would be to emphasize structural reform, including fiscal and administrative reforms, while economic stimulus policy could be adopted within the framework of a small government where the private sector would lead the recovery of the Japanese economy. Then the budget deficit might be reduced quickly, whereas the deficit has so far been increasing due to increased public investment in the past. It is now generally perceived that there must be a lot of waste involved in the traditional type of public investment, which tends to be dominated by powerful ministries. We will change the nature of public investment from the traditional type to a new type where budgetary allocation is made according to projects and not according to ministerial interests. In fact, we can allocate 20-30 percent of public investment in the new way for the fiscal year 2002. We will propose a framework to facilitate project-oriented public investment, especially for scientific and technological advancement, to revitalize the Japanese economy in the long run.