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A Conversation With Shinzo Abe

Speaker: Shinzo Abe, Prime Minister of Japan
Presider: Richard N. Haass, President of the Council on Foreign Relations
September 23, 2014, New York
Council on Foreign Relations


ABE (through translator): Ladies and gentlemen, good morning. It is indeed a great pleasure for me to have this opportunity to exchange views with the makers and shakers of the world's market.

Two days ago, I celebrated my 60th birthday. In Japanese tradition, year 60 means that you have completed one life cycle, but I would like to continue working as if I were in my 40's.

My administration turned its second chapter. A new cabinet has restarted with a new appointment of ministers, however the highest priority of my policy is still the revitalization of the Japanese economy.

The basic philosophy of my growth strategy can be represented by three words: challenge, openness, and innovation. With these three ideals, I am implementing reforms one after another, the reforms which have been thought impossible.

TPP is an attempt to create an economic area in Asia-Pacific region, which is regarded as the growth center of the world. The TPP project is an attempt to create a new rule which is completely and thoroughly free and fair in comprehensive areas such as the state-owned enterprises reform, investment and intellectual properties in addition to tariff issues in this region.

I have decided to participate into the negotiation of TPP with a strong thought that this project be pulled and led by Japan and the United States. Japan is determined to boldly contribute to reaching an agreement.

This year, in April, President Obama visited Japan. And in the summit meeting between President Obama and myself, we have identified the pathways to delineate key milestones. We are now in the final stage of the negotiation.

On the other hand, domestically, we are promoting the aggressive agrarian reform. The rice planting adjustment, or so called set-aside policy, which continued for 40 years, is going to be abolished.

We will be promoting the distribution structural reform in a complete and thorough way. It was regarded as a taboo even to touch the entity of agricultural cooperatives, or "Nokyo," and on this entity, too, we'll be implementing the radical reform, for the first time in the last 60 years.

So, we will be promoting the structural reform within Japan. We will enhance the competitiveness of agriculture in Japan. At the same time, through the economic partnership such as TPP, we will be launching our presence into the broad economic area.

I consider that it is indispensable for the future of Japanese agriculture to promote the domestic and international reforms in an integrated way.

To be honest with you, it is indeed an enormous task to suppress the resistance from the people who have been protected by vested interest, however, there is no future for them if they are not exposed to competition.

So, precisely for their interest, my never-ending reforms shall continue.

Energy is another pillar of my growth strategy. We are standing on deeper reflection and soul-searching and lessons we learned from the nuclear accident in Fukushima. So, bearing those in mind, we will be promoting the recommissioning of nuclear power plants when it is approved by the independent nuclear regulatory commission of Japan, judging that this commission regards the nuclear power plants qualifying the new regulatory standard.

On the other hand, we wish to be the front-runner in the energy revolution, ahead of others in the world. I would like to implement the hydrogen-based society in Japan.

The development of fuel cells started something like 30 years ago as a national project. Last year, I have reformed the regulations that inhibited the commercialization of the fuel cell vehicle. And at last, a first ever in the world, we have implemented the commercialization of hydrogen station and fuel cell vehicles.

Early next year, in the store windows of automotive dealers, you'll be able to see the line up of fuel cell cars.

In the power sector, we shall put an end to the local monopoly of power, which continued for 60 years after the war. We will be creating a dynamic and free energy market where innovation blossoms.

Companies will have to change as well. I will create an environment where you will find it easy to invest in Japanese companies. Corporate governance is the top agenda of my reform list. This summer, I have revised the company law on the question of establishment of outside directors. I have introduced the rule called "comply or explain."

Amongst listed companies in the last one year, the number of companies which opted to have outside directors increased by 12 percent. Now, 74 percent.

I have been tackling the reform of the corporate income tax. From this fiscal year, the effective corporate income tax rate was reduced by 2.4 percent. In several years from next fiscal year, we will aim at reducing that tax rate into the range of 20 percent.

I attach great importance to the reform of GPIF. At an earliest possible timing, we would like to conduct the review of its portfolio. At the cabinet reshuffle that I did this time, I have appointed Mr. Shiozaki, who is the champion of reform, to the post of Minister for Health, Labor and Welfare. So, he will -- his portfolio will include health care, pension, and the labor system. So, you can understand the seriousness that I have toward the reform.

With the releasing of three arrows of Abenomics, a dark and sullen atmosphere went through a sea-change over Japan. The job offers to job seekers ratio is now at the record high level, first time in 22 years. The wage hike also is the highest rate in the last fifteen years. Return on equity of listed companies improved by about 50 percent from the launch of my administration, reaching at the highest level in the last six years.

Another pillar of my growth strategy is to realize a society in Japan where women shine. Since in the last 18 months, since the birth of Abe administration, the number of employed women increased by 820,000. I'm proud of this outcome. .

In the one year and nine months since my taking the helm of the government, already I visited 49 countries. In this fall, if -- when I go to Beijing to attend the APEC, it will be the 50th country that I visit. Japanese corporations, likewise, are turning their eager eyes to overseas markets. With the positive and aggressive economic diplomacy, the infrastructure, the order won in the bidding for the infrastructure in overseas markets reached 9 trillion yen, which is three times the amount compared with the past.Now ladies and gentlemen, no longer there is inward looking Japanese mindset amongst Japanese people, which had existed before Abenomics.

I would like to look forward to receiving your unreserved opinions regarding how we can improve the investment and business and environment climate in Japan.

HAASS: We should be thanking you. The way we're going to do this is we've got time for a few questions in this on-the-record part of the meeting, and then we're going to segue to a private meeting. I'll ask one question, but no more. There's simply too much talent, you really do have an extraordinary representation of this country's business and financial leadership around this table and in the room. So, I will quickly to turn to them.

I will just ask one general question, and I hope people are thinking of theirs. Essentially, you articulated a very ambitious agenda of structural reform, not just from economics, but beyond that. In some ways, in society. So, my question is, how does a leader in Japan in 2014, how do you persuade a relatively well-off, relatively traditional society to change as dramatically as you want it to do?

It's one thing to try to change amidst a crisis. In some ways, you have the harder task of trying to bring about change in the absence of an acute crisis. What's the argument? How likely is it to succeed?

ABE (through translator): First of all, I would like to mention the fact that Japan has been, for the last 15 years, plummeting into the situation of deflation. In fact, the Japanese economy did not grow. In fact, it shrank.

On the other hand, aging is progressing in the Japanese society. Elderly population is increasing. On the other hand, the productive working age population is dwindling.

So, the reality is such that if nothing is done to this situation, we will not be able to enjoy the benefits of health care, pension, or long-term nursing care services we are accustomed to.

Another reality is that in excess of one thousand trillion yen, we have a cumulative debt. Therefore, I came to the conclusion that we have to change our traditional way of thinking. That is why I came up with the policy of bold monetary policy with the flexible fiscal policy, as well as the growth strategy with the drastic structural reform.

As the chairman mentioned, yes indeed, Japan is a traditional society, but there is another reality which is we cannot grow if we do not resort and capitalize as the vitality of women in Japan.

So we came to realize that with the good use of women's vitality, there will be even improved productivity. We came to realize that. And upon this consensus, I came up with this reform agenda.

QUESTION: Thank you, Richard.

Let me build upon Richard's question, if I may. Maybe improve upon it.

The question is this, prime minister. I think -- it's my impression, at least, as this global financial community looks at the three arrow program, it's really the third arrow that's being focused on: the structural reform. In that context, my impression is the American trade negotiators on TPP feel that the future of TPP is dependent on reaching agreement with Japan over agriculture.

So, the question, I think, is from your perspective, what are the differences between you and the United States on agriculture, and then from your perspective, what are the politics around those issues in Japan?

ABE (through translator): Now, on the question of TPP, certainly, there are a lot of people in Japan who are opposed to TPP, and there are some LDP, my party, supporters, who are opposed to TPP, and of course, agriculture organizations are against it.

However the population is decreasing in Japan. However, in the Asia-Pacific region, population is increasing. So, we have to incorporate the dynamism of Asia-Pacific region, which is strongly growing, into our economic future. That is where our future lies. That is what I explain to the people who are opposed to TPP.

At the same time, I do acknowledge that there are sensitivities, both in Japan and the United States. By rendering certain consideration to sensitivities, I am convinced that we are led to better results.

Last year, in February, when I had the summit meeting with President Obama, we acknowledged that there are sensitivities in both countries. In the United States manufacturing sector, namely the auto sector, and in Japan, other culture. So having concern that the presence of sensitivities, we decided that we will go to the negotiation. And indeed, as we speak, we are in the midst of the final stretch of the negotiation.

So, negotiation is going on in specific sectors. We are, as I said, in the final stretch of the negotiation. We are presenting our flexibilities, and my hope is that U.S. side will also come up with flexibility.

QUESTION: Mr. Prime Minister. JapanPost plays a large role in the financial sector. And you were mentioning the desire to have more foreign investment and activity within Japan. It can be difficult to compete against a state-owned entity, given the different ways of measuring success and different ways of operating. Do you see any change in how Japan Post may operate in the financial sector?

ABE (through translator): Talking about Japanese financial industry, it is said that compared with the competitors in international arena, Japanese financial institutions have lower productivity and lower competitiveness.

However, the Japanese financial sector has come over the financial crisis, and there was a major reorganization in the industry in a major way, so in a considerable -- to a considerable degree, I believe that there is an enhanced productivity and competitiveness in the Japanese financial industry.

At the same time, my administration has a -- has an idea on objective of turning Tokyo into a financial city, a hub of Asia. So, we would like to grapple with various reforms to that end. To proceed with that reform, we have taken the methodology of establishing so-called national strategic zones.

So regarding the city of Tokyo, we would like to review and study whether there is the possibility of setting up the financial special zone.

HAASS: What we're going to do is transition to the next phase of the meeting, so I think the media is going to be leaving. We've enjoyed having you, but now we shall transition.

*Editor's note: The translation of the prime minister's remarks has been updated. "I am prepared to have an improvement of market access in a daring way" has been corrected to read "Japan is determined to boldly contribute to reaching an agreement."

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