Japan needs to carry out further structural reforms to take greater advantage of economic globalization, according to the government’s annual white paper on the economy.
To date, Japan has obtained globalization benefits by “going out” to the world, rather than by “receiving” other participants of the global economy, says the white paper for fiscal 2004, released Friday.
It is desirable that Japan open itself through structural reforms to take further advantage of the benefits of the global economy, it says.
The paper, compiled by the Cabinet Office, states that Japan needs to make a greater effort in areas such as deregulation, tax reform and opening up employment opportunities to foreign workers.
Reform in these areas will help Japan reduce price gaps between the domestic and overseas markets, increase direct foreign investment and solve labor shortage problems in its graying society, it adds.
The paper says that one aspect of Japan’s adjustment to economic globalization is the fact that its focus has shifted to Asia from the United States.
In this respect, forming free-trade agreements with Asian economies will bring benefits for the nation, it says.
On the domestic economy, the report says there is a positive cycle in the corporate sector in which restructuring helps companies reduce debt and increase revenue and earnings, adding that this in turn leads to more investment.
Consumer spending also remains relatively strong, supporting the bottom line of the current upturn, it states.
The fight against deflation is, however, only half finished, the paper says, adding that monetary policies should be adopted to prevent long-term interest rates from rising while pushing the economy out of deflation.
Compared with the two previous recovery phases that have occurred since the implosion of the asset-inflated bubble economy in the early 1990s, the current upturn has three notable differences.
First, it is being led by private demand. Second, companies in the banking, construction and real estate industries that have been hit hard by bad-loan problems have seen the prices of their stocks rise.
Finally, the unemployment rate has come down as excess labor at corporations has disappeared, the paper says.
But gaps remain among regions in terms of the economic recovery, with small and midsize companies lagging behind larger companies, it says.
It adds that the government needs to spread the recovery to all regions by launching revitalization policies reflecting regional concerns.
The paper also cites possible growth slowdowns in the U.S. and Chinese economies and interest rates trends as risk factors that could dampen the Japanese economy.
On deflation, the paper says, “It is important to deepen trust from the market for the fight against deflation and boost transparency in financial policy.”
The paper indirectly urges the Bank of Japan to take appropriate measures to stabilize the market after overcoming deflation.