The year 2000 is the start of a new millennium, and in that spirit I would like to talk with you today about the challenges that can be addressed to achieve a reinvigorated Japanese economy that has regained its bright promise.
Let me begin with an evaluation of the recent general election and an overview of the expectations that have been placed on the new cabinet.
As a result of the general elections held on June 25, the ruling coalition, which is comprised of the Liberal Democratic Party (LDP), the New Komeito Party, and the New Conservative Party, found itself with fewer seats in the House of Representatives. However, the coalition still has 271 out of 480 seats, enabling it to maintain a firm majority in both houses of the Diet. This success can be attributed to the stabilization of the financial system pursued under the leadership of the late Prime Minister Obuchi, as well as the economic management policies giving priority to economic recovery, including successive large-scale public spending programs and reductions in corporate and personal income taxes. Another important factor has been the coalition's success in earning the public's trust as it pursues these policies.
On the negative side, however, the coalition lost 65 seats, in addition to the fact that there was an overall reduction of 20 seats in the House of Representatives. This clear retreat indicates that public discontent with the ruling parties is on the rise, particularly in Tokyo and other urban centers.
It is my hope that Prime Minister Mori's new cabinet will address this criticism directly, and will manage the economy to ensure an even more steadfast recovery, including steps to install the infrastructure needed by IT-related industries and urban distribution networks.
The recovery of individual consumer spending is essential for the achievement of a self-sustaining economic recovery. Several developments have made the Japanese people anxious about the future, including lowering birthrates, the rapid aging of the population, and the enormous amount of public debt, which has reached some ¥645 trillion for the national and local governments combined. To stimulate consumer spending, steps must be taken to dispel this anxiety as quickly as possible and to establish a society in which all people can live with peace of mind. To that end, the government should develop a grand design for fiscal structural reforms, encompassing both revenues and expenditures, addressing such issues as the social security system, local governments' finances and taxation system.
I recently talked to Prime Minister Mori directly about these issues.
Let's turn now to Japan's current economic condition.
As I've already mentioned, the economic policies adopted by the Obuchi Administration have had a positive effect in lifting Japan out of a serious recession that has troubled our country since 1997. Preliminary estimates for the first quarter of this year indicate a 2.4% increase in the GDP compared with the same period of the previous year, marking the first time in three business quarters that growth has been in the black. As a result, the real growth rate for fiscal 1999 (April 1999 to March 2000) was approximately 0.5%, which is just about what the government forecasted.
In addition to strong exports, full-scale recovery is being seen in corporate revenues and plant investment. On the consumer front, things are also looking up. Employment and income indicators, including such factors as summer bonuses, have apparently bottomed out, and we can expect improvement by the end of this year. In view of these developments, I think we can expect a growth rate fed by private demand in fiscal 2000 that far exceeds the 1% forecasted by the government.
Keidanren conducted a survey of business trends in the middle of June. A majority of the respondents said that they expected the real economic growth rate to be 0.5~1.0% in the first half of fiscal 2000 and 1.5~2.0% in the second half. For the entire fiscal year, approximately 88 % of them expected an average growth rate of 1.0% (the government's forecast) or higher.
One future issue that must be addressed is making a smooth transition from public demand, which has been the mainstay of recovery efforts up to now, to private demand. To that end, companies must continue to restructure and rationalize their operations, concentrate their managerial resources in their strongest business areas, and take other steps to enhance their competitiveness. Since last year, the government has been working to prepare a legal system that contributes to corporate management reforms and greater industrial competitiveness. I believe it's important for private companies to actively utilize these measures with the aim of further rationalizing and reinvigorating their operations. I also believe that the government should adopt consolidated taxation at the earliest opportunity, engage in regulatory reforms, and actively pursue all remaining systemic reforms.
I am convinced that Japan's economy cannot firmly establish itself on the road to recovery without participating in the IT revolution.
For much of the past ten years, Japan lagged far behind the US with regard to Internet use and other information-related technologies. Recently, however, more and more people are getting access to the Internet through their cell phones. In 2001, the next generation of large-capacity cell phones will introduce advanced commercial services that are the first of their kind anywhere in the world, leading to the even greater dissemination of Internet use. Also, in 2003, we can expect to see the digitalization of land-based broadcasting, leading to the emergence of new services that fuse telecommunications and broadcasting.
The increased use of IT not only revitalizes the economy and improves the quality of life, but also leads to socioeconomic changes such as greater administrative efficiency and downsizing. To ensure that Japan doesn't fall behind the IT revolution curve, steps must be taken to formulate information and telecommunications legislation that is appropriate to the Internet age, and to review the various systems that currently obstruct Internet-based commerce. Also, better educational programs should be implemented so that all citizens can benefit from the digital opportunities generated by IT. Internationally, efforts must be made to harmonize Internet-related rules, including such factors as imposition of taxes and court jurisdictions, while taking steps to ameliorate the emerging "digital divide."
Japan will be hosting the G8 Kyushu-Okinawa Summit which will begin on July 21. As the chair of the Summit Meeting, I sincerely hope that Prime Minister Mori will exercise a leadership role in sending out a message towards the realization of a world in which all individuals, corporations and societies in developed and developing countries alike can enjoy the fruits borne by the IT revolution.
Permit me now to say a few words concerning the international issues confronting Japan.
As you know, negotiations broke down at the ministerial meeting of the WTO held in Seattle last December, leaving the future of a new round of negotiations in doubt. In the course of my visits to the US and various countries in Europe and Asia since last year, I was deeply struck by the critical need to have rules governing free, multilateral trade and investment for the sake of global economic prosperity. I believe that Japan and the US should work closely together and display the strong leadership needed to launch a comprehensive new round of negotiations as quickly as possible. In particular, it's important to monitor anti-dumping and other trade remedies to ensure that they are not used in protectionist ways. It's also important to promote negotiations concerning the liberalization of service trade as a part of the new round.
In some quarters of society, concerns have been raised about the effects that rapid globalization and IT have on the lives of ordinary citizens. Working with the government, the business communities in both Japan and the US must work to ensure a broad understanding of the benefits that come with free trade and expanded IT use.
Running parallel to multilateral negotiations, efforts must be made to encourage free trade on a regional and bilateral basis. Regional free-trade networks have been expanding throughout the world since the 1990s, with the establishment of NAFTA, MERCOSUR, and AFTA, as well as the expansion of the EU. Influenced by this global trend, Japan has also begun to consider entering into free trade agreements in conformity with WTO rules. Studies are already under way with Singapore, South Korea, Mexico, and other countries. We in Japan's industrial sector hope that these efforts will be actively continued in a timely manner.
As I have indicated, trends such as the globalization of the world economy and the IT revolution are occurring with tremendous speed on an unprecedented scale.
Within this context, companies in both the US and Japan are faced with a variety of issues, including: establishing the infrastructure for electronic commerce; dealing with the digital divide; accommodating labor mobility; adapting to regulatory reforms; and addressing social security problems. I believe it is highly meaningful for business people from both Japan and the US to engage in a frank exchange of opinion regarding these and other concerns and encapsulate their conclusion in a joint declaration.
In closing, let me express the hope that the next two days of discussion will yield fruitful results.