Embassy of Japan in the United States of America
在米国日本国大使館

Speech by Ambassad Fujisaki, "Meeting Common Challenges", at World Affairs Council of Dallas

February 2010
                 

We are facing common challenges today.
We, here, mean Japan and the US.
I would call them the three ‘E’ challenges.

E for economic recovery.
E for emerging economies.
E for environment and energy issues.

Today, I would like to discuss how Japan is now trying to meet these challenges.

First, economic recovery.
Japan has gone through a so-called lost decade in the 1990s.
In short, a long economic stagnation.
But through economic and financial sector reforms to meet the challenges of globalism, we were coming back to a steady growth path by around 2005.

There, we encountered two problems.
First, after a long history of “Ichi-Oku-Sou-Churyu,” in which most Japanese people viewed themselves as middle class, many began to feel widening discrepancies between those who are more successful and those less successful. 
Those who felt such discrepancies became the majority, which can be one of the causes for the political change which occurred in 2009.
The other problem was the global financial and economic crisis started from the United States in 2008.
Let me touch upon the latter.

Japanese banks were in fairly good shape.
Non-performing loans were much smaller than before.
Leverages of financial firms were much smaller than here.
Our reliance on securitization market for mortgage financing is very limited.
Still Japan was hard hit by the crisis mainly through its impact on the real economy.

Our real GDP growth in 2009 was minus 5.0%, the lowest since 1956.
The manufacturing sector was especially hard hit.
The output of that sector was down 22% in 2009.
This is because in that sector approximately 17% was the share of transport equipment including automobiles and 18% was that of electric and electronic goods.
These were deemed expensive goods and goods which one could wait to buy.
Agricultural products are consumed regardless of the economic situation.
Cheaper products are bought even with a reduced income.
But sales of higher value goods were vulnerable in a weak economy.

Thus, Japanese exports have gone down 33% in the year 2009.
Appreciation of the yen against USD in the last two years of about 15% contributed to this.
The euro against USD was depreciated by 6% in the same period, and RMB against USD was appreciated by only 5%.

As for the current labor market, because of long-term employment practice, the unemployment rate is still 5.1%, which is, however, still high in our experience.
Lack of social protections for vulnerable workers, including temporary workers, is one of the recent concerns.

Against such a backdrop, the new government of Japan came into power with several prescriptions.
One, to change economic growth from an export-driven one to a more domestic demand-driven one.
Two, to directly assist each household and increase their income and spending capability.
Three, to prohibit the hiring of temporary workers in manufacturing industries.

Some of the concrete measures taken were as follows.
Providing a child allowance of around 145 USD per month to each child regardless of household income level.
From next year, it will be around 290 USD per month.
This was also meant to be a stimulus against the declining birthrate which was already down to 1.37.
By the way, in the US the figure of birth rate is 2.12.
In the long run, it is hoped that this new policy will alleviate the aging society problem.
Make all public high schools free. Currently, the tuition for public high schools is about 110 USD per month.
Creating the individual farming household income support system and providing subsidies amounting to around 670 USD per acre. The average Japanese farm size is about 4.4 acres so this means about 2,800 USD per farm annum.
By the way, the average EU farm is 42 acres and the US 425 acres.
In short, the average Japanese farm is 1% of that of the US.

These new policies are incorporated in the budget for 2010 which is currently under Diet deliberations.
We will see the effects of these new policies in due course.
The GDP growth rate announced this week is 1.1% plus compared to the previous quarter which is 4.6% annum.
This is supported equally by exports as well as domestic demands.
Although it is not as strong as it should be, still we can say that Japan is on the recovering path.　

One burden the Japanese economy has always been carrying is public debt.
It is more than 180% of GDP and the highest ratio among major developed countries.
However, one thing to be noted is that government bonds are mainly consumed within Japan.
As such, this is borrowing from future generations and not from foreign countries.
We hope that as the economy recovers, we will be able to reduce this public debt in the long run.
With a view to achieving a medium and long term fiscal sustainability, we will formulate a mid-term fiscal framework and a strategy for the management of public finance.

The prediction of GDP growth for 2010 by IMF is 1.7% for Japan and 2.7% for the US.
Both countries are lagging behind the world average of 3.9%.
But as the No.1 economy and the No.2 economy, we have to pull others.
We should cooperate with each other through APEC in Yokohama,
Japan, ROK G20 in 2010, and APEC Honolulu 2011.
What we should do is to refrain from adopting the beggar- thy-neighbor policy.
We should not take protectionist policies.

Emerging economies.
China, India, Brazil, Mexico, and other countries are catching up.
There are ASEAN countries as well.
Japan was taking a similar path only thirty years ago.

This reminds me of a Japanese fictional story.
Once upon a time, a criminal was tortured and was agonizing in hell.
Buddha, who was taking a walk in heaven, looked down on hell and, feeling pity, dropped down a spider thread.
The criminal happily grabbed the thread and started to climb up towards heaven.
However, halfway there he noticed thousands of others were following him.
Afraid that the thread may break, he shouted “Stop coming up!”
Then, the thread was cut off, and everyone including the criminal himself fell back down to hell, and the Buddha felt very sad seeing all this.

When Japanese export was growing, a French trade minister, being afraid that our goods would flood their market, designated a town called Poitier, which no one had ever heard of, as the only entry for Japanese products in order to hinder trade.
Japanese industries eventually made products in the UK and elsewhere and exported from those places as European products.
Thus the French were late in adapting themselves to the new situation.

My point is that new economies coming up the thread is an inevitable fact of life.
You just cannot stop them.
Those who try to put their head into the sand like an ostrich will not see the changes in the outside world and will certainly be left behind.

China has become our No. 1 trading partner.
This is both for export from Japan as well as for import to Japan.
Our economies are interdependent.
China will certainly take over the No. 2 economy position from Japan very soon.
However, it does not mean that we can sit idly and watch these emerging countries taking the driver’s seat in the world economy. 

Quite opposite.

Three things must be done.
One, prepare ourselves to go up higher in the industrial structure.
Find the area where a higher level of engineering and designing is required.
As I will touch upon later, the environment and energy sectors may be some good examples for these efforts.
Two, to ask newcomers to abide by existing international rules and norms.
WTO rules, intellectual property rights, etc.
We will have to jointly work together to this end.
Three, to maintain and utilize existing forums such as the G7 or G8 for consultations among like-minded countries.
It is always fashionable and easy to simply focus on a new forum like the G20 but we should not lose long-term sight as well.

Now on environment and energy.
A flash of lightning has struck Japan.
This was on September 7 when then new Prime Minister-to-be Mr. Hatoyama stated that the new government of Japan will aim to reduce greenhouse gases by 25% by the year 2020 from the 1990 level.

This should not have been totally new.
Because this was already stipulated in Index 2009, the campaign commitment document of the Democratic Party of Japan.

But still many people thought “Is this serious?”
Two reasons.

One, the commitment made three months ago by the previous LDP government was a 15% cut from 2005.
This was equivalent to an 8% cut from the 1990 level but was already seen by some as an ambitious target.
By the way, the US Congress proposal of a 17% cut from the 2005 level is the same as a 4% cut from the 1990 level.

Two, Japan has had the No. 1 energy-efficient economy for more than two decades.
According to the IEA (International Energy Agency), in order to produce one dollar of GDP, if Japan needed one unit of energy, the US and EU needed twice as much, Russia 17 times and China 9 times.
It was thought as almost being like asking Kate Moss to go on a diet.

Some top Japanese business leaders grumbled that if the restrictions imposed on industries in Japan were stricter than elsewhere, the industries will have no other alternative than to go out of the country to operate.

However, new Japanese leaders maintained the original position.
The Prime Minister stated in New York at the UN Summit on Climate Change two weeks later as follows:

“I believe that the developed countries need to take the lead in emissions reduction efforts. For its mid-term goal, Japan will aim to reduce its emissions by 25% by 2020, if compared to the 1990 level. However, Japan's efforts alone cannot halt climate change, even if it sets an ambitious reduction target. It is imperative to establish a fair and effective international framework in which all major economies participate. The commitment of Japan to the world is premised on agreement on ambitious targets by all the major economies. ”                                                    

This was seen as a surprise for some other world leaders who were not expecting such bold leadership from Japan.
But nonetheless it was well received.

This new initiative was backed by two beliefs.
One, a sense of urgency.
No time to waste in view of the seriousness of the effects of global warming.
An agreement for the next legal framework on climate change at COP15 was being sought.
By announcing this initiative, Japan intended to lead the international negotiation.

Two, the conviction that this will help the economy.
Green job creation, development of new technology, etc.
This was backed by our own experiences.
As you all know, the oil shocks of the 1970s were a big blow to our economy, but in hindsight, they have helped to shape the Japanese economy today.

Japan thus became one of the key players in the Copenhagen process.

Copenhagen may not have achieved everything, but given the circumstances, I do not hesitate to call it a certain success.
At least, it provided a good basis for the future agreement.

Now let us talk about the future.
I know there are skeptics who think the steam is already gone.
They would say, “If even the top world leaders were not able to come up with more than the Copenhagen Accord, how can officials make any substantial advancement from here?”

We do not take such a pessimistic view.
We think such an attitude could lead us to a self-fulfilling prophecy.

We think agreement is possible.
No, we must make it happen.
The Japanese strategy is to attain the goal of a “fair and effective international framework with ambitious targets by all major economies.”
This can be categorized into four components.
You may call it Japan’s ABCD towards Mexico.

-  A for Ambitious goal to be maintained
-  B for Broad participation
-  C for Comparability and transparency
-  D for Development assistance

Let me elaborate.

Ambitious Goal
Japan will keep its commitment of a 25% cut from 1990.
We have already registered this figure to the Secretariat of the Framework Convention in accordance with the Copenhagen Accord.
Now our task is to come up with concrete plans to domestically realize this goal.
This is indicated in the New Growth Strategy announced in December 2009.
In this new strategy, the Japanese government will mobilize all available policy tools promoting electric power feed-in tariffs, smart-grids, next generation automobiles, and so on.
It is expected that this strategy will create 50 trillion yen (equivalent to more than 500 billion dollars) in new environment-related markets.
It is expected to create 1.4 million environment sector jobs.
Also, it will reduce worldwide greenhouse gas emissions by at least 1.3 billion tons of CO2 equivalent using Japanese private-sector technology.
We expect other countries will be as ambitious as possible in setting their goals.

Broad Participation
Kyoto was a historic milestone.
However, it has a limited effect.
Because it covered only 30% of the current global emissions.
China and the US, both respectively having a share of 20% each, are not under any obligation to reduce GHGs under this agreement.
India, Brazil, South Africa, and Russia are all not bound.
We cannot let that happen again.
We will not have an effective framework without major emitters joining it.
It has to have broad participation.
It must be comprehensive.
We hope a climate bill will be passed shortly.
We welcomed President Obama’s State of the Union address in which he encouraged passage of the bill that would allow the US to consolidate its negotiation position.

Comparability and Transparency
When countries set targets, these have to be comparable.
Only setting goals is not sufficient.
We all have to know how it will be implemented.
We have to know that the results reported are verifiable and trustworthy on a scientific basis.    
This would lead us to confidence-building.
Comparability and transparency are thus required.

Development Assistance
Emissions from developing countries have been increasing to 50% of the global emissions in 2005.
However, three points have to be mentioned.
One, it is true that the largest concentration of GHGs in the air, the direct cause of global warming, has been caused by the economic activities of developed countries.
Two, developed countries have more funding and technology than developing countries. 
Three, many small countries are vulnerable to the impacts of climate change such as floods and they keenly recognize the needs for prompt action against climate change.

Thus it is all the more natural for developed countries to help developing countries from the standpoint of fairness.
Many developing countries deserve assistance for mitigation from developed countries including technical cooperation.
Japan announced at COP15 the $15 billion Hatoyama initiative in 2010-2012 for assisting developing countries to carry out mitigation actions as well as adaptation actions.
This amount includes $11 billion public finance.
If you recall that the collective financial commitment by developed countries for 2010-2012 was $30 billion, our commitment was pretty large.

Last but not least, cooperation between Japan and the US.
According to the IEA, 72% of world public investment in R&D in the energy sector was done by two countries, 31% by the US and 41% by Japan.

This shows that the two countries have special responsibilities.
We have the “Fact Sheet on Japan-US Cooperation on Clean
Energy Technology” issued at President Obama’s visit to Japan.　
It set a good roadmap for deepening bilateral cooperation on clean energy.
The cooperation projects stipulated in the fact sheet, such as smart-grid and CCS (Carbon Capture Sequestration) should be steadily implemented.
As auto industries have changed the world and as computers have changed the world, this whole concept of energy-efficiency may create a new and dynamic industry.
Japan’s bullet train technology could also contribute to high speed railway plans in the US.
On the international negotiation front, Japan and the US should　cooperate for the success of COP16 in Mexico.
We should enhance our outreach to major developing countries, especially China, India, Brazil, and South Africa (BASIC countries).
We should support Mexico as the chair of COP16.
President Calderon of Mexico visited Japan this month and received full support from us.
Coordination on financial assistance to developing countries between the two countries is also critical.

It is my personal concern that trying to manage scarce resources is not anywhere in our agenda.
We keep hearing that some of the emerging countries are trying to exploit all the resources in Africa and elsewhere.
But there is no regime or forum to address such acts.
We all are pretending that only border control of exports and imports are the issues and not addressing such fundamental issues like resource management issues per se.
I believe that it may now be the time to think anew about these issues.

Ladies and Gentlemen,
I think many of us here share a hunch.
A hunch that we are entering a new chapter in our history.
American people are good at meeting challenges.
Your history of the great exploration of the West is good proof.
Those who go early get the golden share.

We Japanese have the experience of developing after nearly three centuries of being closed to the outside world and after the devastation of the WWII.
We both are open to new challenges.
I am certain that cowboys and samurais can lead the world.
Let us together meet challenges.
Let us not miss this chance.
Thank you.