A speech by Ambassador Kenichiro Sasae “Japan's Sustainable Growth Strategy”
May 22, 2013
At the Japan Society
Well, Good evening. It is very exciting to come and visit New York. While I was in Washington DC it is a bit like you are living a very good rural life. It is amazing to see so many cars on the road here in New York. Everything is so lively. Of course in Washington, politics and economic debate are lively, but there are different kinds of people living a good life in New York.
But having said that, I would like to say thank you for Ambassador and President Sakurai, and also Professor Patrick, thank you for your kind welcome. I am delighted to be here at the Japan Society. And thank you for that nice introduction by Professor Patrick.
Well, let me tell you a story related to that. We diplomats normally like to be thought of as cautious, subtle, and reserved. I know you have heard this English word "sassy." It means feisty, full of fun, mischievous—the exact opposite of the bearing that a good traditional diplomat is perceived to have.
Anyway, in Washington the other day, a very nice woman got the pronunciation of my name slightly wrong and introduced me as "Ambassador Sassy." I actually rather like the sound of it. Ambassador Sassy. I think it has a certain flair, don't you think? So in the future if I write a novel, I will change my name to Sassy. That’s not that bad.
But I am glad I could finally make it to New York. On taking up my ambassadorial tasks, New York was first on my list to visit. I was all set to visit New York before the end of last year, that was Christmas Eve, but somehow I missed that opportunity and couldn’t enjoy the Christmas decorations in New York. But I like being here in the spring as well, so thank you for inviting me once again.
Now let me begin with a quote that I've always liked by an English clergyman, John Henry Newman. He said, "Growth is the only evidence of life." Those are pretty good words.
I would say that applies to economics as well. And more importantly, it is what Prime Minister Abe believes.
As you know Japan had the Lost Decade, which stretched into what some have called the Lost Two Decades. So for the past twenty years we were stuck and, during this period there was not much evidence of active economic growth or life. As some of you may have read, the Wall Street Journal recently said in an article, I will quote, "An entire generation of Japanese have graduated from college, gotten jobs and, now approaching middle age, they have known only deflation." ¹
So the question is: can Japan grow? And how? And that is what I would like to discuss with you this evening.
As you know Prime Minister Abe is determined to take the actions necessary to revitalize Japan's economy.
What is so different this time with Prime Minister Abe's pledge? Why is his determination different from his predecessors, including a previous administration of Mr. Abe himself? You know he was the Prime Minister before, and he just came back as the Prime Minister again.
And I want to say that this time the policies are not just being written. They are not just being developed. They are being implemented.
“Without action, no growth.” This is PM Abe’s key phrase.
Indeed, little by little, after I came to Washington, hearing more about the message coming from Tokyo, I came to believe it myself. I have lived a long life as a diplomat. I hear this and that from politicians and political leadership, and I came to think that growth is possible in Japan.
The prime minister's vision has become known as Abenomics. It is everywhere these days. Even American newspapers are talking about Abenomics.
And if you have visited Japan, or if you are Japanese and have returned home recently, you can genuinely feel something starting to happen. Japan has been like a man who was paralyzed but is now beginning to feel his fingers and toes and beginning to move. Life and growth are returning.
The quiver of Abenomics has three main arrows. As most of you have already known, because there is a lot of talk these days about these three arrows.
The first arrow is monetary policy. To defeat deflation, the Bank of Japan began quantitative and qualitative monetary easing, purchasing over $70 billion of Japanese government bonds per month. $70 billion a month is real money. And it is a fundamental policy change for the Bank of Japan and also for Japan.
The second arrow is fiscal stimulus including a $100 billion supplementary budget. This is combined with deficit control that includes increases in the consumption tax from next year if economic conditions improve. We don't have a tea party movement in Japan but we know we have to keep on top of the debt, and there are primarily balanced targets in place. So, as we move on to spend the money from government finance there has to be time for us to recover the fiscal soundness.
And as a result of these two arrows and other factors, we have already seen significantly higher stock prices and an increase in household and corporate confidence. This in turn is feeding into the real economy through consumption and production. Indeed, real GDP grew by 3.5 percent at annual rate in the first quarter of this year, led by strong private consumption.
But it is the third arrow—the growth strategy—where the structural changes will occur that will carry Japan forward for the long term. We know that all of this first pillar and second pillar is like an injection into your body to keep your body from becoming ill. So we have to do something more in the long-term and structure our policy.
While the strategy has a number of elements to it, you can't have growth without a stable energy supply. You can't bring about real long-term growth without various reforms, such as regulatory and tax reform to disrupt the old order. You can't expect growth without measures to become more competitive and innovative.
And the prime minister's vision shakes up the status quo, or at least tries to shake up the status quo in all those areas.
My interpretation of his vision is “turnaround”. As a most matured society, Japan is facing big challenges as are most developed countries: that is a decreasing birthrate and an aging society. Energy constraints and environmental concerns. Labor cost and inflexibility and so on. These are considered to be constraints for growth.
Prime Minister Abe’s growth strategy is to “turn around” these constraints into growth factors through mobilizing all resources: they are people, science, technology, competition, and innovation.
It is well known in Japan that our low birth rates and aging population are limiting our economic future. People aged 65 or older will increase from around 23% of the population today to 40% by 2060. So, almost half of the population will be over the age of 65 in the year 2060. In comparison, the proportion of elderly in the U.S. will not even reach where Japan is right now for another 40 years. That is still a very good aspect of the United States economy.
Meanwhile, Japan is already in population decline. To sustain even the population we currently have, it would take a fertility rate of 2.1, which is the number of children a woman would have to give birth to in her life. Today, the number is below 1.4. That's pretty low.
Japan is a country with scarce natural resources. Our only resource is our people and the ideas and technologies that flow from them. This must be the foundation of future Japanese growth.
One goal of the Abe Administration is to encourage the full utilization of the human capital that we already have. In layman's terms, that means we must make full use of the talents of women and seniors.
Women are one of Japan's hidden resources. We have an abundance of highly educated women whose talents are significantly underutilized. Unleashing this power would be a psychological as well as an economic breakthrough. I believe it would help open Japan to new approaches and ideas. And my wife is very happy to see Prime Minister Abe talking so much about women’s power. And it not only makes my wife happy, but could also make Japanese men happy. Because their wives and their daughters working more actively for economic growth and social build up would also enrich their lives, it is obvious.
Are there obstacles in the way? Yes, a shortage of childcare facilities for one thing. So, part of the growth strategy is to drastically increase the nation's child care capacity. Other measures will encourage an environment that helps parents reconcile their work and family life.
The full utilization of women's abilities is a big idea for Japan and will expand Japanese life.
Another way to expand Japanese life and economic growth is through the free movement of people, goods and money across the borders.
The prime minister recently said, "For Japan to remain inward-looking means we are giving up on the possibility of growth."
We are simultaneously pursuing various trade and economic agreements, including the Trans-Pacific Partnership, which is called TPP; a Japan-EU economic partnership agreement; and a Japan-China-Korea Trilateral free trade agreement.
Japan’s participation in TPP will add great value to TPP itself since Japan’s GDP is larger than those of all 10 non-U.S. TPP members put together. TPP with Japan included will cover 40% of world GDP and a third of global trade. And it would form a large marketplace with common trade and investment rules.
Japan also started economic partnership negotiations with the EU in April, while the U.S. and the EU will soon begin trade and investment partnership negotiations called the TTIP.
We hope that by developing these Japan-EU-US economic partnerships in parallel, we can bring about high-standard global trade and investment rules, as well as contribute to worldwide economic growth.
Of course Japan's agricultural sector is considered as sensitive, as most of you are well aware. The growth strategy will turn around these sensitivities into competitiveness, through land accumulation and integration of farming, processing and distributing.
I will tell you a little story. In Shiga prefecture, that is close to Kyoto, farmers in a village got together to formulate an agricultural corporation. They accumulated their farmlands and built a rice bread processing facility and an outlet store. Now they employ 12 women and 30 seniors over 60 years old. The women and seniors, they are making a small change to the form of agriculture. But what would happen if that is done nationally? The growth strategy will encourage such farmers and help them to become more competitive, aiming for doubling farmers’ income within 10 years. That is what the Prime Minister said in his statement recently.
Improving the free movement of people and ideas, and the competitiveness and innovation this will bring, requires us to shake up the mix in other ways.
It means encouraging more high-skilled foreign workers, foreign tourists and foreign college students to come to Japan.
It means sending more Japanese college students overseas and hiring more university teaching staff from abroad, including doubling the number of foreign teachers in eight national universities in three years.
It means supporting more Japanese TV and other programs and contents introduced globally, tripling their sales within five years.
It means, in additions to the export of manufactured goods and infrastructure projects for which Japan is so known, the export of systems and knowledge and technologies such as medical services, aerospace, disaster prevention, smart cities. The goal is to triple the current amount to $300 billion by 2020.
In short, it is an attitude and outlook on the world. The growth strategy will support Japanese people, companies, and industries to compete globally.
Energy is also key to our economic growth and we will turn around the energy supply constraints caused by the Great East Japan Earthquake into a future growth potential.
We will diversify energy supplies: renewable energy, nuclear, LNG, and coal, while making best use of the most advanced and efficient technologies.
We will restart nuclear power plants once their safety is assured. This is a difficult decision because people are still cautious of nuclear power after the 3.11 accident.
Importing LNG from the U.S. is also an important agenda for us. We believe this will bring about a win-win situation not only for Japan to secure cheap and stable energy, but also for the U.S. to stimulate its economy. It is in this context that I welcome the last week announcement by the US Energy Department to authorize the Freeport project to export LNG to non-FTA countries like Japan.
I called the Undersecretary of Energy, Mr. Poneman, and thanked him. He said that he is also happy. So, that is how our energy partnership is developing these days.
We, Japan, will also undertake electricity system reform for the steady supply of low cost electricity, changing from the present local monopoly system and regulated electricity rates toward full liberalization of generation and retail.
Earlier I mentioned in passing various reforms the government seeks. One of the reforms I didn't mention then involves making Japan’s medical sector more innovative and competitive as a business.
This is an area of great potential, and I will give you an example.
Two weeks ago, Governor Kuroiwa of Kanagawa Prefecture visited the U.S. to explain the new ideas for healthcare by utilizing a Special Zone for Life Innovation Industries. The expansion of special zones is another item I don't have time to go into. But I had dinner with Mr. Kuroiwa, and he explained the fascinating technologies of a "walking assistance" robot named HAL. A Japanese venture company led by Professor Sankai of the University of Tsukuba developed this robot.
As you may know, one of the most popular movies in the United States in recent weeks has been Iron Man 3. I don’t know if some of you are familiar with this movie, but the hero wears an Iron Man suit, which does all kinds of amazing things. Well, imagine if those who have difficulty walking due to old age or injury put on the HAL suit. The robot can sense bioelectrical signals when the user intends to move his legs. Then, the robot moves its joints in sync with the user's movements.
Miraculously, the user can walk again.
And here is a really amazing thing—people who cannot walk by themselves can even walk for a short period of time without even putting on this HAL, because the muscles remember the movements and walk without neurological signals. This is an amazing thing indeed.
More than 300 HAL suits are being used at over 150 facilities. This is illustrative of how innovation can tackle the aged society and further promote economic growth.
It is also illustrative to me of what Japan can achieve as a great technological nation.
Japan also has strengths in the field of regenerative medicine, as demonstrated by Dr. Shinya Yamanaka, Professor of Kyoto University, who won the Nobel Prize in Physiology or Medicine last year for his study of iPS cells.
To bring all these technologies into medical front, we need sufficient support and efficient clinical trials. In the U.S., NIH (National Institute of Health) has been successful in supporting R&D and coordinating clinical trials to make the U.S. a leader of development of medical technology. Prime Minister Abe’s growth strategy will also include setting up Japanese version of NIH.
In closing, let me just say that I haven't had time to go into all the aspects of Japan's growth strategy. And the Prime Minister himself will announce a package of the growth strategy in more details before this summer. But I think an important thing to remember is this. The Japanese people are a hard-working people. We are an educated people. We are a people who can pull together for a common goal when that goal is made clear to us.
Indeed growth is possible in Japan. Japan again can become an engine of global prosperity as it once was. And it is my hope and my belief that we are beginning to hear the sounds of that engine coming to life.
Thank you very much.