Exclusive Interview

Leaders in Japan
No.2

Minister of Economy, Trade and Industry

Ken Saito

From 30 Years of Stagnation to Sustainable Growth:
Economic & Industrial Policies Supporting the Structural
Transformation of the Japanese Economy
By Naoyuki Haraoka
The Japanese economy is returning to strength, with a virtuous cycle between wages and prices, andthe stock market rising for the first time in 35 years. For our second interview with a Japanese leader, we
spoke with the key figure in METI’s policy to sustain this trend, Minister of Economy, Trade and Industry
Ken Saito.
(Interviewed on April 8, 2024)

Current State of the Japanese Economy
JS: With the Nikkei 225 hitting a new record high forthe first time in 35 years, some are hopeful that thelost 30 years are nearing an end. What are your viewson this?

Saito: Currently, the Nikkei Stock Average is at an all-time high, andfor the second consecutive year companies are accelerating theirwage hikes, with the fourth round of spring labor-management
negotiations this year showing a 5.20% wage increase, going beyond
5%. Furthermore, for the first time in 30 years, 100 trillion yen in
investments has been realized, indicating a turning of the tide.
However, it is not an easy task to change in two years the costcutting, shrinking mindset that has been in place for 30 years. This is
the critical point. We must translate the turning of the tide into
structural changes in the Japanese economy, completely overcoming
deflation and shifting to a growth-oriented economy. Thanks to thepolicy measures taken over the past few years, Japan’s economy hasa chance to undergo a major change in macroeconomic conditions. I
firmly believe that we must not let our guard down to miss thisopportunity and end up in the same situation as we were in the past.
I want to mobilize all our policies to tackle this issue.
JS: What caused the 30 years of stagnation in theJapanese economy? And what has changed that has

2 Japan SPOTLIGHT • May / June 2024

led to expectations that the end is near?
Saito: In the 30 lost years, there was the bad loan problem, theglobal financial crisis triggered by the bankruptcy of Lehman
Brothers, and the impending population decline. Private-sector
capital investment remained flat at around 80-90 trillion yen, the rateof wage increases in spring labor offensives remained at 1-2% year
over year for the last 20 years, and technological innovation
stagnated. And the government also recognizes that, under theprivate-sector initiative, its efforts to create new value, focusing onmarket environment improvement measures to remove constraints
on the private sector, have been insufficient as a result.
On the other hand, under the current circumstances the trend ofcompanies raising wages has accelerated for two consecutive years,
domestic investment has reached the highest level in 30 years, andthe appetite for capital investment remains high. We believe that thisis due not only to transitory external factors but also to changes in
the macroeconomic environment, including changes in theinternational economic order and structural labor shortages, as wellas the effects of industrial policies such as support for
semiconductors that have been implemented over the past several
years.

Expected Industrial Policies
JS: In order to realize sustainable growth, I believe
https://www.jef.or.jp/journal/

that we must increase productivity and strengthen
the economy through industrial policies. Whatindustries in particular should we consider as driving
forces? Are they GX-related, such as EVs andhydrogen vehicles, or DX-related, such as AI,
semiconductors, or the space industry, which has
been the subject of a lot of good news recently?
Saito: In order to secure growth over the medium to long term, we
believe it is necessary to develop industrial policies with a firm focus
on targets. As for the next engine of growth, we believe that fields
that solve social issues will grow, and we have set GX and DX as twoof our targets. We believe that Japan has a promising future not onlyin these fields, but also in EVs, hydrogen, AI, semiconductors, space,storage batteries, offshore wind power, biotechnology, and otherareas within GX and DX. I believe that METI must compete and win
on a global scale in these fields while at the same time working to
improve the macroeconomic environment. We believe that by doing
both of these things, we can lay the foundation for a long-term
virtuous cycle in wages, the economy, and prices.
JS: There are positive aspects of AI andsemiconductors, such as increased productivity,
drastic improvement of work efficiency, andpromotion of innovation as a catalyst for growth, butthere are also various negative concerns, such as thepossibility of the spread of fake news. I would like to
ask how we can overcome the negative aspects
without hindering the positive aspects.

Saito: AI is an entity that can lead to the creation of innovation but
also carries various risks, and the world is now discussing how toensure a balance between the promotion of innovation and discipline
for managing those risks. As for Japan’s position, Japan’s basic
stance is not to regulate in advance, but to proactively respond to therapid evolution of AI with an approach that encourages businesses to
respond on their own initiative. Specifically, we plan to soon publish
the AI Business Operator Guidelines in cooperation with the Ministryof Internal Affairs and Communications, so that business operators
can fully utilize AI in line with their risks.
In addition, based on international discussions on safety, the AI
Safety Institute (AISI) was established in February 2024 in the
Information-technology Promotion Agency (IPA) with thecooperation of the Cabinet Office and other relevant ministries andagencies. In the future, we intend to collaborate with international
partners, including those in the United States and the United
Kingdom, centering on AISI, in order to ensure safety.
Fake news is another element of concern, and this is also being
examined by the Ministry of Internal Affairs and Communications, aswell as by fact-checking organizations and other private-sector
entities. METI is also promoting technological development tosupport decision making in dealing with fake information through the
Economic Security Critical Technology Development Program. In any
case, we would like to organically combine both the promotion of
innovation and discipline for risk management to create anenvironment in which our country and its industries can win throughthe use of AI.
JS: China’s rise in EVs and other vehicles has become

a hot topic, but what are your thoughts on the futureof the Japanese auto industry?

Saito: First of all, the automobile industry is basically a key industry
that also supports the Japanese economy, so I believe that we must
win the international competition at all costs. As for carbon neutrality
in the automotive sector, no perfect technology currently exists, andthe situation differs from region to region, so for the time being avariety of vehicle types, including EVs, hybrids, and FCVs, areexpected to coexist. In Southeast Asia in particular, it is unlikely thatEVs will move forward in one fell swoop, so a wide variety of vehicle
types will coexist. From the perspective of winning the competition, I
believe that Japan’s basic strategy at this point is to pursue a varietyof options.
Specifically, with regard to EVs, we will take a variety of strategies,
such as launching the domestic market through vehicle purchasesupport and infrastructure development, or strengthening thedomestic manufacturing base for storage batteries and technology
development, but we will also take a comprehensive approach withthe objective of winning the competition in EVs.
With regard to FCVs, we would like to promote initiatives that
include support for vehicle purchases, infrastructure development,
and overseas development of fuel cells themselves, with anemphasis on commercial vehicles that can take advantage of theircharacteristics. For hybrids, I think the key is to combine this withefforts to decarbonize the fuel itself, so I think it is important tocreate a large-scale, efficient production process for thecommercialization of synthetic fuels in the early 2030s. In pursuingthis variety of options, it may mean changing the center of gravity aJapan SPOTLIGHT • May / June 2024

3

little, depending on the situation.
JS: Regarding space, following the successful

launches of H-ⅡA and H3, there has been a series ofgood news such as the successful pinpoint landingon the Moon. The small commercial Kairos rocket did
not complete its mission to separate a satellite, but I
hear it will try again at an early date. Space is also
very important in terms of economic security. The
global trend seems to be shifting from governmentled to private sector-led efforts, especially in the US.
Do you think that Japan will follow this trend?

Saito: Although the launch of the first Kairos rocket was a great
disappointment, I think it was very meaningful that Space One
attempted to launch a commercial rocket with a practical satellite on
board as the first private company in Japan to do so. We lookforward to their next attempt after examining the cause of the flighttermination.
In addition to civilian applications such as satellite communications,the space sector is playing an increasing role in military security andeconomic security, such as missile defense, and I believe it is
becoming increasingly important from a policy perspective. On theother hand, in recent years, there has been a significant increase in
the number of startups and other industries entering the spacebusiness worldwide, and space development now seems to be
shifting from government-led to private sector-led efforts.
In this context, METI has been supporting the development ofsmall satellites, providing demonstration opportunities in space
using commercial launch vehicles, and supporting the developmentof applications using satellite data. I believe we are now entering thestage of commercialization of our achievements.
A new Space Strategy Fund has been established in JAXA. This
fund will provide support for the full-scale commercialization of theprivate satellite and rocket industry on an unprecedented scale. Thisis an area in which we should continue to make strong efforts.
JS: I believe that support for startups is extremely

important in terms of sustainable growth. I
understand that METI has been putting a lot of effort
into supporting startups recently. For what purpose?
What are the results?

Saito: I believe that startups are very valuable in that they can be a
4 Japan SPOTLIGHT • May / June 2024

driving force of the Japanese economy, solving social issues at a
rapid pace through innovation of new technologies and ideas,
revitalizing markets, and improving the productivity of existing
companies. In this sense, we are taking various support measures.
METI has been working to develop Japan’s startup ecosystem bysending entrepreneurs overseas, expanding public capital to venture
capital firms, and promoting startup development and collaboration
through the tax system, as well as strengthening support for deeptech startups.
As a result, the amount of funding for domestic startups has
increased tenfold in the last decade, and the number of universitylaunched venture companies has more than doubled in the last eight
years. The number of students seeking employment in venturecompanies and startups is also increasing, and there are signs ofchange in the attitudes of young people towards startups.
We are also seeing the emergence of startups that create
innovation and compete globally, as well as impact startups thatcombine economic growth with solutions to social issues, as we saw
with the Noto Peninsula earthquake. We believe that the startup
ecosystem in Japan is steadily evolving.
We have introduced a bill in the current Diet session to amend theIndustrial Competitiveness Enhancement Act which includes support
for startups, and I would like to make a firm commitment in this area
as well. Recently, progress has been made with DX, and various new
products are being created as a result of the emergence of the newchallenging field called GX. We are at a stage where policies toencourage this trend and achieve growth in this area are truly critical.

Maintaining the Population Is Important for
Growth Potential
JS: In order to maintain Japan’s growth potential overthe medium to long term, JEF’s Study Group on
Population Problems (chairman: Naoyuki Yoshino,
professor emeritus, Faculty of Economics, Keio
University) proposed that we should take measures
to maintain a population of 100 million by, forexample, boosting the birth rate by increasing theincomes of young people, establishing a social normof lifelong active employment for the elderly, andactively accepting foreign workers with a certain skill
level by introducing a points system, as in the UK.
What do you think?

Saito: Marriage, pregnancy, childbirth, child-rearing, and so forth are
based on the free decisions of individuals, and the government has
not set any quantity targets such as maintaining the population tomaintain the potential growth rate. However, it goes without sayingthat measures to combat the declining birthrate are important. The
most important measure against the declining birthrate is giving theyounger generation hope of marriage and child-rearing by increasing
their income. METI is working to support medium-sized companies
and small and medium-sized enterprises to invest in growth in orderto create good jobs in local regions where the wages of young people
can increase continuously.
The elderly, along with women, are expected to play an active rolein securing Japan’s labor force. In order to contribute to therealization of active lifelong employment, we will work on the
promotion of healthcare services.
In 2012, points-based preferential immigration treatment for
highly skilled foreign professionals was introduced, which allows
foreign nationals who have reached a certain level of points based on
their duties and career history to obtain a Highly Skilled Professional
status of residence. In April 2023, two new systems were
established: (1) the Japan System for Special Highly-Skilled
Professionals (J-Skip) allows those with a certain level of academic
background or professional career and annual income to obtain
Highly Skilled Professional status of residence, regardless of thepoint systems; and (2) the Japan System for Future Creation
Individual Visa (J-Find) allows graduates of universities ranked in the
top 100 in the world university rankings to be granted preferential
treatment in terms of status of residence to facilitate their
preparation for employment and entrepreneurship in Japan. We hope
this system will further increase the acceptance of highly-skilled
foreign human resources and promote innovation.
Furthermore, for solving the labor shortage, METI supports SMEs
to improve their productivity by labor-saving investments and othermeasures. In 2023, the subsidy supports SMEs to implement laborsaving equipment, such as cashless ticket-vending machines. SMEs
can select products easily and quickly from an online catalog.
Moreover, METI supports investments for the development of new
products and services.

Energy Policy
JS: Since the Ukraine crisis, it has become inevitableto balance climate change countermeasures withenergy security. In this context, the Japanese

government has proposed the Asian Zero Emissions
Community (AZEC).
Saito: A few days after my arrival in METI, I had the opportunity toparticipate in the AZEC summit meeting, and to be honest I was
impressed by how far international cooperation on energy and theenvironment had advanced. The international energy market has been
in turmoil since the Ukraine crisis, and I believe that the importanceof ensuring energy security has been recognized in that context.
Economic growth will increase energy demand in Asian countries in
the future, and therefore ensuring energy security is becoming anurgent issue for them and for Japan.
At the same time, many Asian countries have also set goals ofachieving carbon neutrality, so I believe we are in a difficult situation
where we have to achieve economic growth, ensure energy security,
and work on decarbonization at the same time.
In this context, AZEC was launched with the aim of simultaneously
achieving decarbonization, economic growth, and energy security,and more importantly, to promote cooperation toward
decarbonization in Asia, based on the common principle ofpromoting decarbonization through diverse pathways that take into
account the circumstances of each country. We held our first summit
meeting in December 2023 and confirmed these common principles
as well as the progress of 350 concrete cooperation projects. I
believe we have laid a good foundation for further policy
coordination toward decarbonization. We would like to contribute to
the decarbonization of Asia by accumulating more concrete
cooperation projects. There is a limit to what Japan alone can do to
reduce emissions, so I want to work toward achieving the threegoals I mentioned earlier simultaneously across Asia.

Foreign Economic Policy
JS: Since the Ukraine crisis, I think it can be said thatthe international organizations that formed theworld’s international order, such as the WTO and theUnited Nations, have become dysfunctional. I thinkthat Japan, with its peace constitution, needs to takethe initiative in realizing a new international order
based on the rule of law rather than force. For
example, in order to protect free trade, we should
persuade opponents of it to accept it by advocating
for various measures to take care of those who may
lose their jobs as a result of free trade, such as byJapan SPOTLIGHT • May / June 20245

establishing job replacement assistance andreskilling programs.

only in the WTO but in many fields, will be indispensable in the
future.

Saito: First of all, I believe that Japan has made great efforts to create
an international economic order based on the rule of law. In recent
years, protectionism has been fostered by geopolitical risks and nonmarket measures taken by some countries, and if we disregard theorder based on the rule of law, the world will once again become apower game where the strong win and the weak lose out. Therefore, I
believe that Japan must protect the international economic order
based on the rule of law at all costs and cooperate with the rest of theworld to realize it.
To this end, the reform of the dispute settlement system isunderway at the WTO. Furthermore, I think it is also necessary to
conduct rule-making on a plurilateral basis to move things forward ina pragmatic manner.
In addition to the WTO, Japan has made multilayered efforts tobuild EPAs or trade agreements among other countries and bilateral
trade agreements. It is important to increase the engagement of the
US in Asia, and although it is always said that it is unlikely, we must
continue to make efforts to see if the US can somehow return to the
CPTPP, and we also need to pursue various frameworks such as the
IPEF and other new frameworks among like-minded countries. I fearthat the economic order may collapse rapidly unless we work
together with like-minded countries to strengthen the use of rules
and cooperate on industrial policy.
On the other hand, it is natural that concerns that free trade could
lead to loss of jobs and business arise in each country. Although wecannot completely eliminate such concerns, we should try to address
them as far as possible – for example, by providing support that willlead to re-employment and strengthen productivity andcompetitiveness. While doing so, I firmly believe that free trade rules
must move forward.

JS: There is a lot of talk about strengthening ties with

JS: I think it is very important to balance economic

security and free trade, but how should this be done?
Is it important to work with the IPEF, Quad, and soforth, or is it more important to activate the WTO andthe CPTPP?

Saito: I think we need diverse efforts in balancing economic security
and free trade by utilizing the multilayered and bilateral cooperation
Japan has developed, including making progress in cooperating with
the US in the area of economic security. Such diverse efforts, not
6 Japan SPOTLIGHT • May / June 2024

the Global South, and I think it is important toestablish an Asia-Pacific-wide economic andindustrial policy or a strong supply chain by utilizing
the Quad and IPEF. What do you think about this?

Saito: I think the Global South will come to account for the majorityof the world’s population. Many of these countries will experiencesignificant economic growth, and I think it is very important that wework together with them to create an international economic order
based on free and fair rules. It is also important for Japan tocontribute to the growth of these countries and build a win-win
relationship where we can grow together.
For global rulemaking, it is important to utilize forums such as theQuad, which includes India, a major power in the Global South, and I
think it is also extremely important to build close cooperative
relationships among like-minded countries for the further
development of a free and open Indo-Pacific region. Strengthening
the supply chain will also help to advance the development of a winwin relationship with the Global South. For example, countries
experienced supply disruptions due to the pandemic. Based on theseexperiences, the IPEF Supply Chain Agreement, which entered into
force in February 2024, includes cooperation to ensure effective
coordination under normal and emergent circumstances.
Project-based initiatives are also important, and we have been
engaged in specific discussions with countries in Asia, Africa, andother regions on how to strengthen supply chains, such as securing
critical mineral resources. In this sense, our relationship with the
Global South will contribute to the strengthening of our country’s
supply chain, and at the same time it will lead to the development of
the economic and industrial sectors of partner countries in the
Global South. Through such efforts, I believe it is important to move
forward together with the countries of the Global South as reliable
partners.
JS: Thank you for your time.

Interviewer: Naoyuki Haraoka, executive managing director and editor-inchief of Japan SPOTLIGHT. He translated this article from the original Japanese.