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Mitsuo Horiuchi, the newly appointed minister of international trade and industry, is determined to push through “drastic policies” to accelerate deregulation and create a level playing field for Japanese companies competing in this era of “global megacompetition.”

A former businessman, Horiuchi called for a “major shift” in the nation’s economic policy from one aimed at protecting domestic industry to one that transforms Japan into a more favorable site for manufacturers. “We are entering an age of megacompetition and policymakers around the world are looking hard at how best to overcome this serious challenge,” he said.

But which route should Japan take? Horiuchi said the presence of strong and successful manufacturing industries will continue to be the key to maintaining prosperity in Japan.

“When manufacturers are doing well, the nation’s service sector prospers. It benefits the service industries and enriches people’s life,” he said. “But if Japanese manufacturers stopped creating products, I would say it would be the end of this country.”

Japanese manufacturers, however, are greatly handicapped in their efforts to compete with rivals overseas because of the high cost of doing business here. To achieve his aim, Horiuchi said the corporate tax rate should be cut by some 10 percentage points to help eliminate the disadvantages firms face. At the same time, however, he said Japanese companies must give up a set of special tax breaks that are unique to Japan, a legacy of postwar protective economic policies.

“It is not a matter of a balance between what they gain and what they have to give up. It is a question of whether it is logical to keep such tax breaks,” he said.

At the same time, he said, Japan must further accelerate and make deregulation more far-reaching, especially in the service sector which, he said, has been immune to foreign competition and has consequently remained inefficient, causing manufacturers’ costs to spiral. Deregulation is also about the only way to boost domestic demand and thereby avoid trade friction with the United States, he said.

As a result of the recent sharp rise in Japan’s trade surplus with the U.S., Washington has been stepping up pressure on the Japanese government to act promptly to expand domestic demand, as Tokyo has promised. But given the nation’s dire fiscal situation, Japan cannot turn to fiscal measures to generate domestic demand.

Horiuchi, however, said he is not overly concerned about bilateral economic and trade relations. “Deregulation implemented in the past has had positive effects, as we have seen in the strong sales of personal handy phones,” he said. “Of course the negative impact of the consumption tax hike in April has lasted longer than expected and depressed imports, but once we are through this period, the situation will start improving.”

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