Current Economic Situation In Japan

Today, the world economy is facing an unprecedented crisis. Throughout the first half of this decade, the world economy was going strong thanks to vigorous growth in the industrialized economies of Japan, the United States, and the EU, emerging markets like China, and resource-producing countries. Since last summer, however, the situation has taken a sharp turn for the worse owing to a succession of problems, including the collapse of the U.S. housing bubble, sharp fluctuations in resource and fuel prices, and growing instability in the financial system. As a result, signs of a global economic slowdown have been growing stronger.

Unlike in the past, it is no longer possible for individual nations to escape the impact of a global downturn and sustain economic growth, as economic globalization has progressed and national economies are closely interconnected today. We believe the time has come for the governments and the business communities of all nations to pool their resources and work in a concerted fashion, as partners, to restore stable growth to the global economy as a whole.

In the midst of all this, the Japanese economy is also facing stormy weather. Japan's economic growth over the past few years has been fueled largely by rising exports, sustained by an expanding global economy. For this reason, the combined impact of the global slowdown and rising fuel prices has hit us hard. The result has been a sharp economic contraction in the second quarter of this year.

We cannot afford to sit by and do nothing. The National Diet is now deliberating a supplementary budget to finance a package of emergency economic measures. The first priority is to enact this without delay to prevent the economic climate from worsening any further. If necessary, moreover, further measures should be adopted to stimulate the economy, including tax cuts for individuals and businesses.

Even while moving to put the economy on the road to recovery through these emergency measures, we must continue to move ahead with necessary medium- and long-term reforms. At the core of these is reform of taxes, government finances, and the social security system. Anxiety over the breakdown of Japan's social security system and its long-term viability are among the top concerns of the Japanese people today. This anxiety, moreover, is sapping consumer confidence, which is one reason domestic spending remains weak.

Last week, Keidanren submitted to the government a policy proposal for a unified reform of the social security system, the tax system, and government finances. We cannot hope to maintain a stable social security system, pensions and healthcare included, and boost the economy's growth potential without carrying out a wholesale reform of the nation's tax structure.

The foregoing overview of the Japanese economy's current situation, as well as its medium- and long-term challenges, makes clear that Japan is grappling with extremely difficult internal and external conditions.

To overcome these difficulties, we will definitely need strong leadership from Prime Minister Taro Aso, who took office last month. We hope that Prime Minister Aso will begin by getting ...