Provisional Translation

The Guideline on Policy Promotion
For the Revitalization of JapanMay 17, 2011

Cabinet Decision
The Great East Japan Earthquake is a “crisis in the midst of a crisis.” Even before theearthquake Japan had been faced with a “crisis” of economic stagnation and social occlusion,
with this recent great earthquake occurring in the middle of this crisis. The nuclear incident isstill ongoing, and so we must do absolutely everything to tackle this incident.
We must restart initiatives to revitalize Japan in order to underpin the reconstruction of EastJapan and deal with the challenges that had been facing us since prior to the earthquake. The
guideline will present policies to revitalize Japan that are commensurate with thereconstruction following the earthquake (ensuring the sustainability of public finances andsocial security and redesigning and refortifying national strategies towards new growth).

1.

Basic Policies for Economic and Fiscal Management After the Great
Earthquake(1)

Impact of the Great Earthquake on the Japanese Economy
1)

Three Shocks Brought About by the Great Earthquake The great earthquake brought about the following three types of shocks to theJapanese economy as a whole, which had been picking up.
 No. 1

 No. 2
 No. 32)

A supply shock due to the enormous human and physical damages andsevering of economic circulation caused by the complex disaster of theearthquake, tsunami, and nuclear incident (suspension of economic
activity in the area afflicted by the nuclear incident)
Restrictions on electricity due to the destruction of power generating
facilities
Recognition in the safety of nuclear power was shaken, as wasconfidence in Japanese products and “Japan brand” precipitated by thedamage caused by radiation

Impact for the Immediate Future The supply restrictions from the shocks in No. 1 and No. 2 are exerting an enormous
impact on the Japanese economy. That is to say, there has been damage to stock
centered mainly in the afflicted region, supply chain disruptions, and decreasing
production activities and exports due to the power restrictions in the jurisdiction ofTokyo Electric Power Company and Tohoku Electric Power Company.
 At the same time, negative impact by worldwide rumors related to radiation anddecline of consumer confidence has affected demand side of the economy such as
consumption and tourism, whose effect on employment is also under concern.

1/6 With regard to prices, although mild deflationary conditions still persist, thepossibility of cost-push inflationary pressure caused by the supply constraints
coupled with rises in the price of such as oil should be kept in mind.
 Flexible and active policy responses after the earthquake staved off any major
problems in the financial, capital markets and the exchange market, but carefulobservation should be kept.
3)

Future Impact on the Japanese Economy

 Impacts on the business climate from the drop in consumption and other factors areanticipated, and the continuing harsh condition for employment is expected to persist
for a certain period of time as well. There is also the possibility that the restrictions
on electric power will remain to some extent in the following fiscal year and beyond.
Conversely, the reconstruction demand due to things like rebuilding the damaged
capital stock will bring about positive effects for the business climate.
 In order to overcome concerns such as those over the energy and environmental
restrictions, and outflows of companies and human resources, starting medium tolong-term initiatives will conceivably be needed. At the same time, on the plus side
there is the possibility that new demand for earthquake-resistant housing,electricity-conserving, energy conserving, and new energy investments will expand.

(2)

Basic Policies for Economic and Fiscal Management for the Immediate Future,
Short-Term, and Medium to Long-Term
 We will overcome the restrictions brought about by the great earthquake—such as byrestoring economic circulation as soon as possible—in a sequential and steadymanner. At the same time, we will strengthen the initiatives for achieving new
growth and restore the growth potential of the Japanese economy.
 The need to ensure the sustainability of public finances and social security andmaintain confidence in such institutions, which had been major issues from before,
has increased all the more because of the great earthquake. As such, we will promotesound initiatives for achieving this.
1)

Immediate Future: Prompt Recovery from the Great Earthquake We will place the highest priority on assistance for the disaster victims, assistance forthe victims of the nuclear incident, disaster relief, and promptly responding to theaccident at the nuclear plant. At the same time, we will also promote a variety ofpolicies in a concentrated manner, including clearing away the mood of self-restraint,
rebuilding production equipment and facilities, measures for electricity supply anddemand, restoring and reconstructing supply chains, employment measures (such as
the creation of direct and indirect employment for reconstruction projects and theagricultural, forestry and fishery industries, etc.), and the prevention of damage fromrumors in Japan and abroad.

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 These policies will be promoted through measures such as the early implementationof the FY2011 first supplementary budget and prompt revisions to the regulation andinstitutionalism. We will promote initiatives that maintain their comprehensive andcoherent nature as we go about clearly laying out the economic effects of the policies
as a whole.
 The stability of the financial and capital markets and the exchange market isextremely important for the sake of restoring the smooth circulation of the real
economy. What is more, we expect the Bank of Japan to share the basic perspectives
with the government with regard to the macroeconomic management indicatedwithin the guideline, and to continue to prop up the economy through the proper andflexible monetary policy management via the close exchange of information andcooperation with the government.
 However, attention must be paid to the rising cost of primary products such as oil,
due to the conflicts in the Middle East and North Africa and increased energy
demands from newly emerging countries, as well as the financial problems inEurope.

2)

Short-Term (About Three Years From Now): Lay the Foundations for
Self-Sustaining Growth We will support the full-scale restoration of the disaster region. At the same time, wewill also promote measures such as policy responses to the electricity restrictions andthe construction of a system for supplying energy that is resistant to disasters. We
will also promote moves such as restoring and strengthening “Japan brand”,
preventing outflows of companies and human resources to overseas and ensuring
inflows of human resources from overseas, and restoring tourism demand byovercoming the damage from rumors in Japan and abroad.
 We will create a virtuous cycle for fostering new seeds of growth (including theconstruction of compact cities and Eco-Towns; energy conservation and new energy
businesses; the development of distributed energy systems; social security services
suited to regional needs; and turning agricultural, forestry, and fishery industries intovalue-added sextic industries, integrating processing and retailing functions, etc.) andexpanding capital demands (promoting private investment through funds andencouraging the use of private finance initiatives and public-private partnerships,etc.).
 We will proactively respond to requests for the implementation of these initiatives inthe disaster region in the form of forerunning models.
 Throughout this period, we will secure the financial resources needed forreconstruction following the earthquake and put into practice integrated reform of thesocial security and tax systems.

3)

Medium to Long-Term: Achieve Sustainable and Self-Sustaining Growth
3/6 We will strengthen initiatives aimed at realizing new energy and environmental
structures capable of meeting appeals for a safe and stable supply, efficiency, and forthe environment, as well as robust economic structures that are fortified against
enormous risks. At the same time, we will also achieve sustainable andself-sustaining growth by means of promoting the expansion of new growth sectors.
 We will firmly establish the sustainability of public finances and social security bycarrying on with the integrated reform of the social security and tax systems.
(3)

Medium to Long-Term Economic and Financial Outlook
 We will accelerate the necessary reforms with an eye toward achieving the samelevel of economic growth as was previously predicted for over the medium tolong-term. With regard to prices, for the immediate future we carefully judge theimpact of the cost-push inflationary pressures, and strive for moderate and steadyprice increases measured by GDP deflators, which are the same as those predictedthus far.
 For public finances, we will steadily move forward with fiscal consolidation on asound footing through measures such as assuring the sources of finance forreconstruction following the earthquake, the integrated reform of the social security
and tax systems, and initiatives for government revitalization.
 Business trends must constantly be kept in mind for the sake of economic and fiscal
management. The Cabinet Office will perform medium to long-term analysis aroundthe middle of this year in order to check up on the economic and financial outlook.

2.

Restarting toward Japan’s Revitalization(1)

Seven Basic Principles for Restarting

In order to restart we cannot just simply resume those which had been suspended by theearthquake.
In line with the following basic principles we will rebuild the economy, industry, and localcommunities with resilient structures through a “qualitative shift” in our strategy towards newgrowth, while also fostering the human resources to sustain these. We will proceed byovercoming the weaknesses that were laid bare by the Great East Japan Earthquake andrestoring our wounded confidence, while also strengthening our bonds of friendship with theworld. We must regenerate a dynamic and powerful Japan.
1)

2)
3)
4)

Japan’s revitalization will underpin the reconstruction of East Japan, and thereconstruction of East Japan will serve as a trailblazing example for Japan’srevitalization
Establish economic and social structures that are fortified against enormous risks
Maintain confidence (public finances and social security, Japan brand)
Concentrated allotment and concentrated investment in new growth under
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5)
6)
7)
(2)

resource restrictions, such as those on financial resources and electric power
Realize local empowerment and private sector vitality
Revitalize economy in an open manner by strengthening “kizuna” (the bonds offriendship)
Promote understanding in Japan and overseas regarding Japan’s revitalization

Procedures for Each Major PolicyJapan’s revitalization commensurate with reconstruction following the earthquake will be
carried out under the two pillars of ensuring the sustainability of public finances and social
security, and redesigning and refortifying national strategies towards new growth.

I.

Ensuring the Sustainability of Public Finances and Social Security

 Integrated reform of the social security and tax systems
 Discussions are proceeding at the Council for Intensive Discussion on Social Security
Reform, and the council’s final draft will be obtained by the end of June in accordancewith the cabinet decision from the end of last year.
 Fiscal Management Strategy
 We will revise The Medium-term Fiscal Framework around the middle of this year,
thereby steadily pursuing fiscal consolidation in an integrated manner with economic
growth and social security reforms.

II.

Redesigning and Refortifying National Strategies towards New Growth Growth Strategy
 The Council on the Realization of the New Growth Strategy will be held beginning inMay.
 With regard to the New Growth Strategy, it will inspect items requiring a qualitative
shift, those which are adhering to their objectives but for which their schedules shouldbe revised, those adhering to both their objectives and schedules, those to be newly
addressed, and so on by this summer. It will then present a concrete image for thestrategy within the year for the sake of revitalizing Japan.
 Innovative Strategy for Energy and the Environment
 The Council on the Realization of the New Growth Strategy will start making
considerations for revising the strategy for becoming an environment and energy power.
 We will consider an innovative strategy for energy and the environment consisting of ashort, medium, and long-term that not only overcomes the power restrictions andstrengthens safety measures, but which also corrects the distortions and vulnerabilities
in the energy system and meets appeals for a safe and stable supply, efficiency, and forthe environment.
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 Strategy for Preventing the Hollowing-Out of Industry and for Developing Overseas
Markets
 The Council on the Realization of the New Growth Strategy will re-examine initiatives
such as the Inward Investment Promotion Program and promotion of Japan as an Asian
Industrial Center, foster global talents, and deployment of integrated infrastructuresystems.
 In addition to the responses that should be taken immediately (restoring andreconstructing supply chains, prevent harmful rumors, etc.), we will also explore anumber of other measures. These include competitiveness of business locations,creating economic and industrial structures which are fortified against enormous risks,and promoting strategic and focused innovations that will pave the way to future.
 Strategy for Strengthening Bonds between Countries
 The Minister-level Meeting on FTAAP (Free Trade Area of theAsia-Pacific)/EPA(Economic Partnership Agreements) will consider the basic policy forstrengthening “kizuna” (the bonds of friendship) with other countries, such as
promoting high-level economic partnerships based on “Basic Policy on Comprehensive
Economic Partnership” (cabinet decision adopted in November 2010) and establishingeconomic security, taking into consideration factors such as the sentiments of thefarmers and fishermen who have suffered enormous damage by the earthquake and thenuclear incident, the progresses in the international negotiations, and concerns ofde-industrialization.
 The timing of a decision on whether to join negotiations for the Trans-PacificPartnership (TPP) Agreement will be considered from an overall perspective.
 Strategy for the Revitalization of the Agriculture, Forestry, and Fisheries
 Considering the enormous damage to the agriculture, forestry, and fisheries caused by
the Great East Japan Earthquake, every effort will be made for the restoration andreconstruction from the disaster. The Council to Promote the Revitalization of Food,Agriculture, Forestry and Fishery Industries will consider measures to cope with newchallenges of rehabilitating agriculture, forestry, and fishery industries in East Japan,and restoring confidence in Japan’s agricultural and marine products.
 As for the basic policy to be developed at around June and an action plan to be drawn
up at around October according to “Basic Policy on Comprehensive EconomicPartnership”, the new timelines will be considered to replace the intended schedules,
taking into account the overall schedule for the revitalization of Japan and the progressin restoration and reconstruction.

3.

Towards Substantiating the Guideline

In accordance with the guideline, for the future we will move forward with examinations ofinitiatives in the various policy fields at the related agencies, councils, and so on, and willcompile and publicly announce an overall view of the policies being promoted in the middleof the year.
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