Podium: The Japanese economy will recover

From the Japanese Prime Minister's first speech to the Diet or parliament in Tokyo

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RECENTLY APPOINTED as Prime Minister, I have shouldered a heavy responsibility. The most important issues of the moment are the prolonged stagnation of the economy and the loss of confidence in our financial system. The recent Upper House elections made clear that above and beyond all else, the people of Japan regard the economic situation as extremely critical, and want an economic recovery as soon as possible. The greatest way in which Japan can contribute to Asia and the world is through the sound functioning of the Japanese financial system and the revitalisation of the Japanese economy.

The most important element in overcoming the current critical state of the national economy will be the crystallisation of the wisdom of the people. To this end, I have decided to establish a Strategic Economic Council under my direct jurisdiction, centring around members of the private sector and economic specialists. Then, I myself will make the final decisions and implement the policies which emerge. I will also lend an ear directly to the voices of the people of Japan - workers' and managers' enterprises - and create as many opportunities as possible to explain my own views.

Japan stands at a major juncture, faced with rapid progress in terms of the ageing of society, a falling birth rate, computerisation and internationalisation. The people of Japan have begun to have concerns about the future of our economy and society. Politics must dispel these fears and give the people dreams and hopes, and they should be trusted by the people.

It is of the highest priority to address the non-performing loan problem decisively in order to reconstruct the Japanese economy. The flow of funds is like the blood of society, and the financial institutions that are responsible for its circulation assumes the role of the heart. A partial failure in the financial sector, therefore, may lead to a systemic crisis. I would never let a systemic crisis occur. Public funds will be used to revitalise the financial system. On the other hand, it is necessary that financial institutions adopt the internationally accepted level of disclosure and boldly engage themselves in their own reorganisation and restructuring. The management of failed financial institutions should assume responsibility for the failure of their companies; and, further, their strict responsibilities under civil and criminal codes should be investigated.

The stagnation of the economy is serious. To promote economic structural reform, it will be absolutely crucial to strengthen the economy from the supply side, working to reform the structure of high industrial costs. Using as a guide the process by which the United States and some European countries have rebuilt their economies since the Eighties, I will promote measures for deregulation, administrative reform, privatisation of the public sector and tax system reform. In addition, I will stimulate research and development so that new industries will spring up vigorously. I will create a society where foreign companies will move into Japan, drawn by our attractive business environment. I will also push forward strongly with the fostering and promotion of venture companies and new businesses.

As to personal income tax, I will reduce the maximum combined level of individual income tax and inhabitants' tax to 50 per cent, with a view to unleashing work incentives for the Japanese people.

I am determined to make my utmost effort, at the risk of the Cabinet's life, to bring the Japanese economy to its recovery path within a year or two. Given factors such as economic and social globalisation, and the swift ageing of Japanese society, paralleled by a falling birth rate, my mission is to transform Japan's social system into one that is appropriate for the age of knowledge in the 21st century.

Japan's economy and society still have strong fundamentals. In recent years, our foreign asset balance has outweighed foreign debt. Extensive personal financial assets, supported by high savings rates and annual GDP, are both on a scale that places Japan second in the world. These figures would suggest that Japan's economic fundamentals are extremely robust. Japan also enjoys good social order, with education and work ethics both at extremely high levels. Japan, in fact, has very strong social foundations as well. I would call on the people of Japan to have more confidence and pride in their country.

With such strong foundations, if Japan can overcome the current difficult circumstances, it will once again surge forward powerfully.