is easier for companies to turn profits.

The reluctance of financial institutions to lend money (the "credit crunch") has been a major factor in recent capital investment slumps, but progress is being made on programs to stabilize the financial system and alleviate the credit crunch. These efforts to improve cash-flow have been a turn for the better, but there is still more to do to ensure that appropriate funding is supplied to meet medium- and long-term capital investment needs. Essential in this will be the creation of a robust industrial financing system based on financial intermediation routes appropriate to the various risks and returns involved.

It will also be important that monetary policy management react dynamically to trends in the demand for funding.

  

Economic management that takes care not to trigger a collapse in private-sector demand

The basic focus of economic management will be on returning the economy to the path of self-sustaining growth as quickly as possible while facilitating the transition from public-sector demand to private-sector demand as the engine of expansion. In doing this, policymakers must be aware of the potential deflationary effects in the form of falling sales and income for the economy as a whole that may result from the business restructuring programs that represent economically rational choices for individual companies. Even after the process of macroeconomic recovery begins, fiscal and monetary policy must continue to be managed in a dynamic fashion so that the transition to private-sector demand-led growth does not go so far as to trigger collapse.

When utilizing fiscal measures as a means of achieving dynamic economic management, funds should be invested intensively in areas that will directly contribute to the recovery of private-sector demand and the strengthening of industrial competitiveness, rather than merely creating temporary demand.

Furthermore, it will be important to practice sound economic management so that the utilization of fiscal measures does not have a detrimental impact on the financial markets.

Reforms to the fiscal structure have been frozen, but Japan remains in serious fiscal straits and will obviously need to address this problem in the future. Efforts to promote fiscal reconstruction over the medium and long terms will be important in gaining the confidence of the markets. In doing this, study should be given to mechanisms to improve the efficiency of the budget in qualitative terms rather than merely reducing deficits in quantitative terms.

   

Creation of Frontier Markets that Produce Jobs

If Japan is to achieve new economic development and expansion in the twenty-first century, it is important that it create economic energy and vitality over the medium and long terms by engaging in supply-side structural reforms that eliminate the technological constraints and regulatory impediments that stand in the way of businesses achieving their full potential. The first step in this is to build Frontier Markets that will create new values and new job opportunities.

 1. Creation of Markets Oriented towards the "Needs" and "Seeds" of the twenty-first century

Japan is already engaged in efforts to promote "Fifteen New Growth Sectors" as part of its program to create new values and new job opportunities. The Frontier Markets are particularly important for their large latent size and their close connection to competitive strength. These are the sectors that are driven by computerization, the growing need for environmental conservation, the need to adapt to the gray society, and other socioeconomic changes. They are also the markets that are able to take advantage of technological seeds that exist in a wide range of industrial areas. At a recent meeting of the Industrial Competitiveness Council, the Prime Minister proposed to take up three sectors--computerization, environment, and senior services--as a "Millennium Project" that would lay the groundwork for the markets for the future. The public and private sectors are developing stronger ties as they collaborate on the creation of markets in line with this framework.

Japan will move forward with the creation of electronic, network-based administrative procedures in areas such as procurement and application and licensing processing. These efforts will improve the quality of public services, create more efficient administration, and provide the general public and the business community with low-cost access to tailor-made public services. Japan will also create basic systems for electronic signatures, electronic verification, and security.

2) Improvement of the public's ability to utilize information technology (computer education)

Japan will create an environment in which the children who will lead the economy and society of the twenty-first century are able to utilize information technology to gain access to information and knowledge at will. Japan will also create an environment that allows adults to master use of the latest information technologies.

3) Information technology development

Computer technologies, device technologies, and networking technologies are basic technologies used in common by all industrial sectors. ITS (Intelligent Transportation System) is a technology that will have a broad impact on economic and social activities. Japan will promote the development of these technologies.

a) Development of basic technologies

b) Development of ITS

We will build a safe and comfortable road network, improve the global environment, and create new businesses and job opportunities by working, in collaboration with all relevant ministries and agencies, towards the international standardization of ITS and further research and development based on demonstration testing in model areas. These efforts will bring about the computerization of vehicles, roads, and traffic.

(2) Creation of environment-related markets

1) Promotion of waste recycling programs

Programs in the past have concentrated on promoting recycling, but will be restructured to provide general promotion of "reduction," "reuse" and "recycling." Strong emphasis will also be placed on specific programs for specific sectors.

a) Fundamental strengthening of recycling programs

We will enhance and strengthen efforts to use the existing framework for recycling promotion. We will also promote "Eco Town" projects, and facilitate the creation of markets for recycled products.

b) Full introduction of reduction/reuse programs

We will study frameworks for promoting resource conservation, repairs, and reuse of parts in order to reduce the amount of waste generated. We will also build facilities required for reduction/reuse programs.

c) Specific programs for specific sectors

Cycles will be developed for individual areas based on appropriate mixes of reduction, reuse, and recycling and appropriate divisions of responsibility among businesses, consumers, the central government, and local governments as warranted by the manufacturing, distribution, and consumption conditions for individual products.

2) Global warming programs

The "Outline of Programs to Promote Global Warming Measures" is a comprehensive statement of programs to be urgently promoted between now and 2010 in light of the results from COP3. We will give a strong push to domestic and international programs to achieve the goals of the "Outline."

a) Energy conservation programs

b) New energy programs

c) Research and development of innovative environmental and energy technologies

We will promote research and development of innovative environment and energy technologies designed to provide efficient, low-cost solutions to global warming issues.

d) Enhancement of CFC-substitution programs

We will promote programs to restrain output of the three substitute CFC gases (HFC, PFC, and SF6) by following up on industrial action plans and developing new alternatives. We will continue to recover specific CFCs and engage in other measures to protect the ozone layer.

e) Institutional enhancements: emissions rights trading, joint implementation, clean development mechanisms etc.

We will actively participate in international discussions on the creation and enhancement of the institutions that COP3 decided to introduce, including emissions rights trading, joint implementation, and clean development mechanisms. In doing this, we will emphasize the achievement of both economic growth and environmental conservation.

3) Toxic substance management systems

a) Comprehensive management systems for chemical substances

We will develop systems to provide comprehensive management of chemical substances in order to improve and strengthen the chemicals management engaged in by businesses.

b) Dioxin programs

We will promote accurate measurement of industrial dioxin emissions and programs to reduce these emissions.

(3) Creation of senior services markets

1) Promotion of efforts to maintain and improve health

We will promote the development of technologies to maintain and improve the health that enables senior citizens to lead rich and fulfilling lives.

2) Environments that enable senior citizens to participate in society

We will enhance the ability of all senior citizens who so desire to participate in society by providing support for employment and entrepreneurialism by senior citizens and promoting networking among senior citizens.

3) Environments conducive to safe, confident living

We will create environments that enable all citizens, including seniors, to live quality lives in safety and confidence. This will include the universalization of living spaces, and the ability to receive at-home medical and nursing care.

(4) Creation of biotechnology markets

1) Enhancement of intellectual base in biotechnology

We will enhance the intellectual base that will serve as the foundation for research, development, and entrepreneurialism in the field of biotechnology.

2) Promotion of advanced technology development, support for commercialization

We will promote the development of the advanced technologies that can be expected to serve as the core of the biotechnology industry in the future, and will provide support for their commercialization.

3) Creation of environments conducive to the use of biotechnology

We will create environments that ensure safety when biotechnology is used.

(5) Steady implementation of programs for the Fifteen New and Growth Sectors  

 

2. Technology Innovation that Creates Frontier Markets 

 

We will develop a medium- and long-term industrial technology strategy that is shared by industry, academia and government, and serves to promote the development and spread of strategic technologies that will provide breakthroughs in the creation of Frontier Markets. Financial and human resources will be invested in a prioritized and strategic fashion based on this strategy. We will also build the evaluation systems necessary to ensure the success of strategic programs.

We will create an environment conducive to technological advance by tapping the latent abilities of industry, academia, and government, and maximizing the mutual ties among them so as to accelerate the commercialization of technology development results.

 

 

(1) Active participation in the formulation of national industrial technology strategy, and establishment of integrated evaluation systems  

 

We will actively participate in the process of formulating a national industrial technology strategy developed jointly by industry, academia, and government. This strategy will include an analysis of current conditions in major areas of individual technology, outlooks for future technology development, goals and responses for general challenges to be tackled by the government, and responses to institutional challenges.

We will build a prioritized and efficient environment for technological advance by providing full prior evaluation for individual research and development projects in line with the national industrial technology strategy, investing resources in priority projects, and engaging in rigorous after-the-fact evaluations that take a comprehensive view of projects in specific industrial technology areas, and in evaluations of the research and development system itself. In conjunction with this, we will create systems to reflect the findings from these evaluations in future resource allocations.  

 

(2) Reinforcement of public-private sector ties  

 

1) Enhancement of national research institutes

National research institutes will be enhanced so as to improve their research functions and facilitate the use of their research findings in industrial activities. Fundamental reforms to the national research system will be made in preparation for the incorporation of institutions as independent government-run corporations.

2) Promotion of joint industry/academia/government technology development projects

We will create joint public-private research and development projects for the integrated development of advanced, basic technologies and their commercialization as a means of promoting the development of strategic technologies through joint efforts by industry, academia, and government. We will also create a research system that seeks proposals from creative and original young researchers.

3) Training of technology-development personnel

We will enhance the environment for training personnel involved in new technology development so that the content of education provided at universities better meets the needs of industry. We will support the development of educational programs for interdisciplinary humanities/science areas, and will also support industry-academia efforts to introduce outside accreditation for industrial science education.

4) Acceleration of enhancements to intellectual base.

We will reinforce the metrology standards, standard substances, biological resource information, and other aspects of the intellectual base for research and development and industrial activities.

5) Promotion of strategic standardization

We will create an environment that is conducive to the quick acceptance by domestic and foreign markets of the results of research and development. We will also study the standardization systems that will facilitate global business activities and strengthen the competitiveness of Japanese companies in the twenty-first century, strengthen the ties between technology development and standardization, and promote environmental enhancements and international harmonization of standards and certification systems that will facilitate the formulation of Japan-originated international standards in areas in which Japan has superior technology strengths. We will work for the assurance of transparency, fairness, equality, and market-orientation in international standard formulation.  

 

(3) Environmental enhancements to promote the development of technology and the commercialization of results  

 

1) Enhancement of intellectual property systems

It is essential that the intellectual property system contribute to the appropriate and effective protection and promotion of use of the intellectual property that is the result of creative technology development, for it is only with such systems in place that creative technology development can be promoted. To achieve this, we will enhance the specialized intellectual property services provided by patent attorneys, and study ways to protect and use intellectual property in light of digitalization and networking, and also in light of the advances seen in biotechnology.

2) Promotion of the licensing and commercialization of technology development results

To promote the licensing and commercialization of technology development results, we will strengthen our support for technology licensing organizations (TLOs), study the potential for relaxing regulations on national university instructors and national research institute researchers serving concurrently in executive positions in private companies, and facilitate the matching of technology seeds and commercialization needs. We will also improve systems so as to provide for smoother licensing of research results owned by the national government, and will promote the commercialization by private companies of the technology development results achieved with national funding.

 

3. Development of service markets to support more affluent living standards 

Services industries have great potential both to meet the diversifying needs being seen in Japanese lives and to create new job opportunities. We will foster the services markets that will support more affluent living standards by deregulating, using computerization and standardization to increase productivity, and formulating rules for consumer transactions. 

 

(1) Promotion of deregulation and outsourcing in priority sectors

Many service sectors come under public regulation. To develop new services markets, we will study modalities of regulation in priority areas such as energy, employment and labor, medical care, and welfare taking care to maintain the quality of services. We will also study institutional modalities that will promote outsourcing in government sectors, and means of enhancing the environment so as to encourage outsourcing in the private sector.

(2) Promotion of standardization and evaluation in services sectors

It is vital that services sectors become more competitive if they are to adapt to diversification and internationalization. To do this, we will need to use standardization to improve productivity and quality, and will also need to introduce principles of competition based on service evaluations. Specifically, we will take an active part in discussions of the formulation of standards for service industries in the ISO, and will study ways to promote the spread of ISO 9000 (quality control systems) and ISO 14000 (environment management systems) certification in service sectors. We will also create an environment conducive to the smooth flow of information concerning service evaluations.

(3) Formulation of consumer transaction rules

   

New developments in small business policy for the support of entrepreneurialism and venture businesses, policies to reactivate local economies

1. Creation of environments conducive to growth for the entrepreneurs, ventures, and small businesses that will create new markets and jobs

The national support menu for new ventures has expanded significantly in recent years, and we will continue to provide organically linked programs for venture support, small business support, and local industrial support so as to create an environment that is conducive to the growth of entrepreneurs, ventures, and small businesses, including businesses that are undergoing a "second founding."

(1) Review of basic principles underlying small business policy

Small business must be seen as a source of dynamism in the national economy. We will review the range of small business policy and install support for entrepreneurs and ventures as a new pillar of small business policy.

(2) Enhancement of venture support

1) Improved training for venture business personnel

We will provide a deeper pool of knowledgeable venture capitalists who nurture new industries and others who have specialized skills for the support of venture businesses. We will also create an environment conducive to the utilization of this personnel as required by venture businesses.

2) Facilitation of direct finance

It is vital that a wide range of financial products be provided as appropriate for assessed risks in order to create smoother supplies of funding as warranted by the stage of a company's development. In particular, there are some ventures that have only limited means of fund-raising because of the excessive dependence on indirect finance, which is biased towards physical collateral. We will therefore create an environment conducive to the use of direct finance in order to provide these firms with a wider range of fund-raising options.

3) Enhancement of indirect finance

As stated above, we will expand the ranging of financing available to venture businesses from the current predominance of indirect finance out to include direct finance. In indirect finance, we will improve the convenience of government loan programs so as to facilitate fund-raising according to the company's stage of development.

4) Tax incentives

We will abolish the tax on retained funds in order to enhance the net worth of venture businesses and encourage greater investment in facilities, research, and development. We will, in addition, reduce inheritance taxes and other burdens so as to facilitate the continuation of businesses. To assist venture companies in attracting personnel, we will enhance the stock option systems and make corresponding enhancements in the tax code.

5) Promotion of technology development and commercialization

R&D oriented ventures suffer from several impediments: the risks inherent in technology development, the difficulty of securing funding, and the limited personnel, information, and other managerial resources available. We will develop an integrated support system to assist companies throughout the entire process of technology development and on into commercialization.

(3) Enhancement of support for entrepreneurs

We will create an environment that is more conducive to entrepreneurialism by making use of local platforms (general support systems from research and development through commercialization as defined under the New Business Creation Promotion Law) and, in light of the lack of collateral and credit among most prospective entrepreneurs and soon-to-be entrepreneurs, making greater use of unions, voluntary groups, and other joint organizations. By doing so, we will seek improvements in Japan's start-up rates and more job opportunities for all members of society, including women and the elderly.

From the perspective of supporting start-ups, we will also promote the spread of franchises and other chain systems already used to a great extend in the distribution services industry.

2. Support for business reform at the small businesses that provide energy and vitality for local economies, programs to revitalize local economies

Local economies must be revitalized with support for venture businesses and small businesses. This will involve cooperation among the central government, local governments, and local business communities to seek more effective utilization of the unique managerial resources available in local communities (industrial concentration, availability of technicians and engineers, local universities, urban locations etc.). To do this, we will create environments that allow the small businesses who provide local economies with their energy and vitality to engage in managerial reforms, and will endeavor to reenergize "main streets" and industrial concentrations so as to create new job opportunities and support the development of distinctive, independent businesses and communities.

(1) Support for managerial reforms at smaller businesses and enhancement of competitive conditions

1) Support for managerial reforms

We will support efforts by individual small businesses to engage in aggressive business activities and unflagging managerial reform. Examples of areas to be supported include the development and supply of new products and services, the installation of new production methods and efficient order management systems, and the development and introduction of new methods of selling products.

2) Facilitation of access to managerial resources

We will utilize market functions and private-sector energy to provide support for small businesses endeavoring to enhance and reinforce their access to management expertise, technology, information, and other "soft" managerial resources. We will also support ties among small businesses with mutually complementary managerial resources.

3) Opportunities for market entrance, more appropriate transaction patterns

We will abolish the commerce and industry union cartels by which the government intervenes directly in the markets so as to provide small businesses with opportunities for market access. We will also create an environment conducive to improvements in rules, system, and private trading practices that impede the business activities of small businesses or place excessive burdens on them.

4) Creation of safety nets against drastic changes in the business environment

We will create appropriate safety nets to mitigate the impact of changes in the business environment, thereby enabling managers to adapt to changes and have second chances of achieving their goals.

We will provide necessary and sufficient additional funding for the ?20 trillion guarantee facility of the Small Business Financial Stabilization Special Guarantee Fund that is scheduled to terminate at the end of fiscal 1999, thereby preparing for changes in and making appropriate enhancements to the small business financial environment in fiscal 2000.

(2) Support for programs to encourage new start-ups and ventures in local communities

We will develop programs for high-potential regions that provide appropriate mixes of "soft" supports (funding, personnel, technology) and "hard" supports (incubators etc.) so as to reinforce the local platforms administered under the New Business Creation Promotion Law passed last year. The overriding purposes in this will be to improve ease of access to start-up support programs, improve efficiency by consolidating programs, and encourage local-led efforts. We will also create a nationwide network to supplement the efforts of local governments, and will create an environment that encourages competition among the programs offered by local governments.

(3) Reenergizing "main streets"

"Main streets' have an important role to play as the place where "people, goods, and information" come together and interact in the local community. They are also the breeding ground for new goods and services. We will endeavor to create demand, encourage investment, and create new industries from the synergy obtained by enhancements and links among the many "soft' and "hard" programs available.

(4) Reenergizing local industrial concentrations

We will move steadily forward with programs to encourage the concentration of small businesses in the industrial concentrations, "company towns," and "industrial belts" that provide the basic technologies underpinning manufacturing.

(5) Reenergizing technology development with ties among local industrialists, scholars, and government officials

We will create technology development programs led by public institutes and provide stronger support for research and development by industry/academia/government consortia so as to reenergize technology development in local communities through ties between industrialists, scholars, and government officials. We will also develop ties among local platforms to facilitate the commercialization of research and development results.

Creation of business environments that strengthen competitiveness

1. Promotion of deregulation that will contribute to greater competitiveness

Japan must provide basic services on par with international standards if it is to serve as an energetic location for business and strengthen the competitiveness of its industries. To accomplish this, we will steadily implement deregulation programs designed to foster the sound functioning of market mechanisms and will strategically respond to the erection of standards and certification systems that are harmonized with international frameworks.

(1) Greater deregulation of basic industrial services

We will move steadily forward with the deregulation of energy, distribution, and physical distribution pursuant to the "Action Plan for the Reform and Creation of Economic Structures (Second Follow-up)," the "Three-year Plan for Deregulation" and other deregulation plans. We will also give greater priority to deregulatory efforts that will contribute to stronger industrial competitiveness.

(2) Enhancement of standards and certification systems in harmony with international frameworks

2. Creation of infrastructure that contributes to competitiveness

In light of the globalization of business activities, we will promote the creation of infrastructure that meets international norms and will strengthen corporate competitiveness.

(1) Prioritized, efficient infrastructure creation

We will engage in prioritized, efficient creation of infrastructure that is truly required and will directly lead to stronger corporate competitiveness. This includes physical distribution infrastructure and information and telecommunications infrastructure.

(2) Promotion of PFIs

We will actively use Japanese-style PFIs (a technique in which private businesses create industrial infrastructure) in the creation of industrial infrastructure. This will be done in light of the need to provide for 1) efficiency and effectiveness, 2) reductions of public-sector fiscal outlays, and 3) the creation of new industries.

3. Building robust industrial financial systems

We will build robust industrial financial systems with the potential for efficient and effective development in order to provide for the medium- and long-term development of the Japanese economy. These systems will be constructed taking into account the need for businesses to be able to raise funds at appropriate times and in appropriate manners, will be designed to provide a variety of products and services for different combinations of risks and returns, and will be make full use of information technologies. We will ensure that corporate accounting and auditing systems conform to international norms and will continue to administer these systems in an appropriate manner so as to facilitate fund-raising from overseas investors.

(1) Creation of environments for market-based indirect and direct finance

We will review systems, promote the creation of information infrastructure, and prepare the environment for an expansion of direct finance in order to provide for a greater variety of risk/return combinations that will enable companies to raise funds efficiently. We will also study expansions to market-oriented indirect financing (provision of funds raised by intermediaries on the markets).

(2) Fundamental reforms to income taxes on financial instruments

We will provide neutral handling of financial instruments in the tax code and will study neutral tax-handling that takes a comprehensive view of financial and similar instruments as "financial income." The purpose in this will be to supply the financial markets with the abundant savings held by the household sector.

4. Stronger competitiveness through business reforms employing information technology

· Efforts are being made to improve productivity by applying information technology to reforms in all aspects of business activities. We will promote these efforts and will create an environment conducive to increased effectiveness.

(1) Support for efforts to use information technology to achieve more efficient business activities

1) Enhancement of electronic commerce rules

As information technology is used to reform business practices and electronic commerce is introduced, there will be aspects in which the rules for conventional economic transactions, including traditional commercial practices and legal frameworks, will not be suitable. We will move forward with the formulation of new transaction rules in light of the discussions taking place in the private sector and talks on the formulation of basic international systems. These rules will cover areas such as counterparty authentication, consumer protection and privacy, and security. We will also support the establishment of evaluation systems in order to foster trust among users.

2) Promotion of more efficient business activities through investments in strategic computerization

It is essential that information technology be used to reform work processes and organizations, both at individual companies and in larger corporate groupings, if corporate competitiveness is to be maintained and improved. To do this, we will create an environment that supports corporate decision-making on information technology and computers.

We will also create an environment that is able to reduce production and distribution costs and supply consumers with goods that meet their needs. To do this, we will promote the use of information technology to strengthen supply systems by providing integrated management of production, distribution, and consumption processes, and will also promote the use of jointly developed, standardized technologies.

3) Promotion of small business computerization

Computerization has an important role to play in business reforms at smaller companies. We will therefore create an environment that supports the computerization of this sector.

(2) Achievement of greater efficiency in non-financial sectors through the use of financial and information technologies

Financial institutions in Japan and other parts of the world are introducing new financial and information technologies in an effort to provide more attractive financial services. The use in non-financial sectors of these financial and information technologies will enable companies to improve their fund-raising and risk management abilities and contribute to more competitive products. We will study enha