Study Group on “Policies Needed to Ensure Japan’s International Competitiveness”
June 15, 2011

[Overview of research]
As implied by references to a “lost decade” or even “two lost decades,” Japan’s post-bubble
society and economy have experienced a protracted recession and stagnation, with novisible sign that the country is approaching the end of the tunnel.

In 2007, Japan wassurpassed economically by Singapore in terms of per capita GDP, surrendering its long-held
status as number one in Asia, and in terms of total GDP was last year knocked down tosecond place in Asia and third worldwide by China.

In the international competitivenessrankings published by the International Institute for Management Development (IMD), Japan
dropped from 17th in 2009 to 27th in 2010.

The economic damage caused by the recent

earthquake, admittedly a force majeure, will inevitably lower Japan’s competitiveness within
the international community.

There appear to be numerous factors tied to this prolonged slump in the Japanese economy.
One is the shift in demographics that has taken place over the past 10 to 20 years.

WithJapan’s labor force shrinking and aging and its population on the whole declining, securing
new labor resources for the future has become a major issue.

Approaches to employment

and education systems that enable younger generations to hold out hope for the future arebeing explored.

A second issue essential to strengthening Japan’s competitiveness is economic
liberalization, especially in the areas of trade and investment. With Japan’s population on
the decline, the prospects for a substantial expansion in domestic demand are poor.
Accordingly, the Japanese economy will have to rely on external demand, making it
particularly urgent that Japan seek out new opportunities in emerging markets in Asia andelsewhere that are forecast to see rapidly growing demand.

FTAs must be pursued and astrategy developed to entice investment from abroad.

The third policy issue to be addressed in enhancing competitiveness is the harmonization ofdomestic regulations with those overseas as well as the increased acquisition ofinternational standards.

In aiming for a “Heisei opening of Japan,” it will become

increasingly important to ease domestic regulations and harmonize regulations
internationally.

Avoiding discussions of these matters will in particular hinder efforts toconclude FTAs with the US, EU and other developed countries. Japan faces the reality

that it will be unable to maintain its advantage in international markets unless it wins out inthe competition to acquire international standards.

Acquiring international standards is an

issue of primary importance in selling products overseas, and Japan’s economic strength
will be greatly impacted by its efforts in this regard.

The fourth issue Japan must address to ensure its competitiveness within the international
community is the development and utilization of human resources.

Major distortions are

beginning to appear within the human resources development mechanisms of Japanesesociety as a whole, particularly in approaches to human resources development atuniversities and companies.

Universities have proven unable to provide the educationneeded to boost academic ability and foster human resources, and companies no longer
have the financial leeway to fund employee education activities to make up for these
deficiencies in higher education.

We believe the time has come to give serious thought to

new means of developing and utilizing human resources in ways befitting today’s
super-aging global society that values higher education, i.e., a 21st-century-style maturesociety.

This research project will organize four subcommittees on (1) securing labor resources andimproving youth employment, (2) liberalizing trade and expanding domestic investment, (3)harmonizing regulations and acquiring international standards, and (4) developing andutilizing human resources, and will carry out well-formed analyses of the status quo anddevelop policy recommendations on each of these issues. We will consider the course
Japan should pursue in future, taking into consideration the impacts that the recent
earthquake has and has not had on these issues and the best ways of tackling these issues
to overcome the March 11 crisis.

We will have leading Japanese researchers in theseareas participate in this project and examine policies that present answers to these issues.

[Project plan]This study group is scheduled to meet for the first time in July 2011.

Study Group meetings

will be held thereafter once or twice each month, and interviews and overseas surveys will
be conducted at the appropriate times when necessary.

A final report should be compiledby the end of March 2012, and the research findings will be made available via symposiums
and the JIIA website.

[Study Group Members]

2Chairman
ITO Takatoshi (Professor, Graduate School of Economics, University of Tokyo)

Members
KOMINE Takao (Professor, Hosei Graduate School of Regional Policy Design)
OTA Soichi (Professor, Faculty of Economics, Keio University)
URATA Shujiro (Professor, Graduate School of Asia-Pacific Studies, Waseda University)
ABE Kazutomo (Professor, Tokyo Denki University)
NAKAGAWA Junji (Professor, Institute of Social Science, University of Tokyo)
NAGAOKA Sadao (Professor, Institute of Innovation Research, Hitotsubashi University)
HATTA Tatsuo (Visiting Research Fellow, Faculty of Economics, Gakushuin University)
FUKAGAWA Yukiko (Professor, School of Political Science and Economics, WasedaUniversity)

Members & Secretaries
SAIKI Naoko (Deputy Director General and Senior Research Fellow, The Japan Institute ofInternational Affairs)
HATASA Nobuhide (Research Fellow, The Japan Institute of International Affairs)3