'Immediate' steps needed to reform economy: MITI
'Immediate' steps needed to reform economy: MITI
TOKYO (AFP): Japan's Ministry of International Trade and Industry (MITI) warned yesterday that "immediate" steps were needed to reform the country's traditional economic structure given its inability to cope with global change.
In its annual white paper on international trade, MITI noted that the huge price gaps between Japan and the rest of the world were diminishing only slowly as the impact of the strong yen differed from industry to industry.
"This shows that there exists areas in Japan where market mechanisms do not work and thus have the danger of weakening, to a large degree, Japan's competitiveness as an industrial location," the white paper said.
The report, adopted by the cabinet yesterday, said high costs were behind sluggish foreign investment and "may be dissuading introduction of excellent overseas managerial resources and promotion of domestic competitiveness in areas not easily achieved through trade, such as service industries.
"There is a high possibility that Japan is losing the opportunity and merits of improving efficiency within its economy," it said.
"Because in a faster changing international environment, leaving the situation as it is will cause huge repercussions in areas such as Japan's economy, society and employment, it is clear that economic structural reform is necessary and that Japan doesn't have much time to realize this reform."
The report concluded that there was only limited problems associated with the "hollowing out" of the Japanese economy, the current buzzword given to the large-scale shift on manufacturing abroad in response to the strong yen.
But "it is a problem if market distortions exist within the Japanese market and only those enterprises which do not have a comparative advantage remain," it said. "It is important to correct such distortions as soon as possible."
Lessons
Drawing lessons from other countries, MITI noted that the advance of service industries in the United States in recent years was accompanied by "very high and stable growth" in some parts of the manufacturing sector.
Germany is meanwhile seeking to maintain and expand its position as an industrial location and a center for research and development, Britain is strengthening the relationship between its technological and industrial policies and Singapore is building up its domestic industrial infrastructure.
Distorted economies such as Japan are therefore "increasing their chances of losing economic efficiency and attractiveness of their industrial locations and market, and will be left behind of the global business scene," MITI warned.
The MITI report called for "flexible and appropriate measures" to expand domestic demand, while closely observing the changing environment, both internal and external, including exchange rates.
"Japan's economic system, which has supported past our economic growth, may no longer be able to adapt to the changing international environment," it said.
The country must therefore "undertake immediate reform in order to build an affluent and vibrant economic society" while taking "bold actions" to revitalize the economy by improving market conditions.
"For this, it is important to tackle such issues as promotion of deregulation, correction of price differentials, expansion of domestic investment opportunities, a smooth shift of the industrial structure by creating new businesses and upgrading social capital," the report said.