Annual Review 2023

New Waves of Japanese Domestic& Foreign Policies
8 articles have been selected for the Annual Review 2023 from the six issues of the past year.
#249 May/June 2023 Issue#250 July/August 2023 Issue#251 September/October 2023 Issue#252 November/December 2023 Issue#253 January/February 2024 Issue#254 March/April 2024 Issue

https://www.jef.or.jp/journalEditorial Committee Members
Mohan Gopal
Special Advisor, Art of Living Japan

Mohan Gopal is an IT industry veteran in Japan for over 30 years. His
past positions include Japan Country Manager for Tata Infotech andfor Covansys, CTO of Camel International Group, Global Sales
Enablement Leader for Japan at Hewlett-Packard Enterprise andProduct Marketing lead at Sybase Japan. He has also been abusiness communications coach and is a visiting faculty at Toyo
Gakuen University, Tokyo. Since 1996, he has been a volunteer
with the Art of Living Foundation, an international NGO promoting
yoga and peaceful thinking. He actively presents his views on
varied topics including business, culture history and international
relations.

Nobuo lizuka
Professor of Department of Economics, Kanagawa University

Having worked for the Nihon Keizai Shimbun (Nikkei) and theJapan Center for Economic Research for more than 20 years as ajournalist and an economist, Nobuo lizuka is one of the mostcredible economists and commentators on the short-term outlook
for Japanese business and economy. His economic analyses arealways based upon his sharp, intuitive observations of businessdata. He is also working as a research director at the Tokyo
Foundation for Policy Research.

Ken Karube
Journalist & Professor of Teikyo University

Ken Karube was a former executive writer for Tokyo-based wire
service Jiji Press, which he joined in 1979 after graduating fromWaseda University. From 1992 to 1996, he was a correspondent inWashington DC and from 2004 to 2009 he was chief of the Washington
and New York bureaus. Before taking the executive writer’s post, he
was deputy managing editor at the Tokyo head office (2010-2013).
Among his books are Failure of Economic Policy Management (1999),
The Bubble Economy (2015) and Japanese Bureaucrats with their
Abenomics (2018).

Sota Kato
Research Director of the Tokyo Foundation for Policy Research
After earning a law degree from the University of Tokyo, he joined theMinistry of International Trade and Industry (MITI, now the Ministry of
Economy, Trade, and Industry, or METI) in 1991. At MITI and METI,
he served as assistant director for the Aircraft and Defense Industries
Division, deputy director for the International Economic Division, andsenior fellow at the Research Institute of Economy, Trade, andIndustry (RIETI). He also served as associate professor at Yokohama
National University and professor at the International University ofJapan (IUJ). He has an MBA (with honors) from Harvard Business
School and a PhD in political science from the University of Michigan,
and is concurrently a visiting professor at IUJ.

(Listed in alphabetical order by surname as of April 2024)

Taizo Tsuboi
Director, Planning and Coordination Division, research Planning
Department, Institute of Developing Economies-JETRO

Currently, he is in charge of general affairs, research planning andpublic relations at Institute of Developing Economies (IDE-JETRO),
one of the largest public research institute in the field of social sciencesin Japan.
In addition to the experience at the IDE-JETRO, he had worked as
Director in charge of policy and research, Invest Japan Department(2017-2019) as well as Director of the Investment Team, JETRO
London (2010-2014).

Kazumasa Oguro
Professor of Department of Economics, Hosei University

Having worked for the Japanese Ministry of Finance for several
years, Kazumasa Oguro became deeply interested in academic
research on the macroeconomy and public finance. He joined theFaculty of the Institute of Economic Research at Hitotsubashi
University and later moved to Hosei University. He is one of themost active advocates of fiscal reconstruction, including a
consumption tax hike to reduce the cumulative budget debt of theJapanese government. He is a first-class analyst of Japanesemonetary policy in the international context as well as the global
economy overall.

Sanjeev Sinha

SBI Securities, Executive Officer - Shikkou Yakuin, Founder &President IIT Alumni Japan
Graduating from India's top university, IIT, Sanjeev first came to Japan
contributing to the formation of Mobileye, a world leading AI company.
Subsequently working with Goldman Sachs, Mizuho, UBS and as CEO
of Tata Asset Management and TATA Realty and Infra PE Fund inJapan, he specializes in AI and Finance. He has been a visiting facultyat the University of Tokyo, Member of AI Committee at GoJ and anadvisor to Japan Railways, various Ministries and others. He has
authored 4 books from leading publishers like Nikkei and Kodansha.

Mukesh Williams
Professor, Soka University & Former
University

Facultymember, Keio

University educator, media writer and poet. He has taught modern
literatures, media studies and cultural history in Japan and India. He
is presently distinguished professor at Shoolini University, advisor to
the South Asia Research Center, Soka University and the Global
Core Committee Member Alumni Association, St. Stephen’s College.
He has conducted seminars on global cultures and counseled
Japanese universities on academic exchange and PR strategies.

Long Ke
Project Professor of Global Center for Asian and Regional
Research, University of Shizuoka & Senior Fellow of the Tokyo
Foundation for Policy Research

Nariyasu Yamasawa
Professor of the Faculty of Management at Atomi University

Keiichiro Kobayashi
Professor of Department of Economics, Keio University

Jillian Yorke
Interpreter & Translator

Born in China and having studied economics at Nagoya University
in Japan, Long Ke is a distinguished economist and opinion leader
on the Chinese economy in the Japanese policy researchcommunity. He has long been an advocate of political reform in
China as a key to achieving economic reform in the country.

Keiichiro Kobayashi has experience in the economic policy-making
process as a former government official at the Ministry of Economy,
Trade and Industry. His interest in economic research led him to join
RIETI and pursue an academic career. He has been an active
commentator on economic policy issues, in particular fiscal andmonetary policies, such as how to eliminate non-performing loans
after the bubble economy in Japan. His current interest covers
areas such as innovation and income inequality.

Nariyasu Yamasawa is a professor of the Faculty of Management at
Atomi University. He worked for the Nihon Keizai Shimbun (Nikkei),
the Japan Center for Economic Research, and is former director of
the Statistics Commission Office, Ministry of Internal Affairs andCommunications.

Co-author of several books, Jillian Yorke worked for the Public
Relations Office, Minister's Secretariat of the Ministry of Economy,
Trade and lndustry in Tokyo as an English editor and checker for
more than a decade. She now lives in New Zealand, where she iscurator of the Japan Library: Pukapuka, as well as a freelance
writer, translator, and interpreter, and often visits Japan.

Introduction – New Waves of Japanese Domestic & Foreign Policies
We highlighted in FY 2023 the challenges for Japan’s domestic economy and external
relations, and possible solutions for them. Our survey has convinced us that Japan is a nation
facing many challenges. If appropriate solutions can be found, Japan would have great potential
as a leading country, and each solution could be a valuable contribution to global peace andprosperity.
Early in 2024, we see signs that the Japanese economy is getting out of deflation. Stockprices have soared and both price and wage increases will most likely follow. A wage-pricevirtuous cycle could soon be achieved. Japan’s traditional economic system of lifetime
employment and seniority-based salaries and promotion, which allegedly brought about thecountry’s historically high economic growth era, has lost its dominance, though it still broadly
exists. Many Japanese are now ready to change this old system. Structural reform on a national
basis as well as a corporate basis is underway. Young people are now very keen on starting up
their own businesses.
Looking abroad, geopolitical risks are rising. The continuing war in Ukraine and the HamasIsrael conflict present numerous concerns, especially in the field of human rights. How to end
these wars and build a new world order for peace and prosperity is a global challenge. And in
the midst of the US-China confrontation, how Japan can contribute to the mitigation of suchgeopolitical risks is a critical issue for its foreign policy.
Against this backdrop, we selected the following articles published in FY 2023 asparticularly deserving of being read and examined again.
Ⅰ Issues on Japan’s Domestic Economic Reform
1 Mr. Kuroda’s unprecedented monetary easing – opening an exit from long-time deflation■Exclusive Interview-Leaders in Japan No. 1 with Mr. Haruhiko Kuroda, Former Governor of
the BOJ & Professor at the National Graduate Institute for Policy Studies“Background of Japan’s Unprecedented Monetary Easing & the Direction of Monetary Policy
Hereafter”
By Sota Kato
(Japan SPOTLIGHT March/April 2024 Issue)2) Human capital investment & raising labor mobility in Japan – key to raising Japaneseindustrial competitiveness■Roundtable with Yuri Okina, Kazuhiko Toyama, Prof. Kotaro Tsuru & Masakazu Toyoda“Labor Mobility & Human Capital Investment”
By Japan SPOTLIGHT(Cover Story 1: Japan SPOTLIGHT May/June 2023 Issue)3) Tourism as sources of Japanese growth potential■Roundtable with Tomoko Okuda, David Atkinson, Mitsuaki Hoshino & Masakazu Toyoda“Opportunities & Challenges for Japan as a Tourism Powerhouse”
By Japan SPOTLIGHT(Cover Story 1: Japan SPOTLIGHT July/August 2023 Issue)4) How to stop depopulation in Japan – to maintain the presence of a leading nation■“What Must Be Done to Maintain a Population of 100 Million in Japan?”By the Working Group for Japan’s Population Challenges(Cover Story 1: Japan SPOTLIGHT January/February 2024 Issue)

II

Issues of Japanese Security & Foreign Policy5) Japan’s national security faced with new challenges in the East Asia■“Japan’s Foreign Diplomacy & Security Strategy, & Its External Economic Strategy in
Relation to the Taiwan Crisis”
By Satoshi Morimoto (Special Article 1: Japan SPOTLIGHT September/October 2023 Issue)6) Keeping friends with Asia
To complement the declining leadership of the United States, Japan needs to pursue its own
foreign policy to secure its national security. Strengthening alliances with Southeast Asia andIndia must be a part of such a strategy.
■Roundtable with Prof. Naoyuki Yoshino, Prof. Mariko Watanabe, Prof. Shujiro Urata &Masakazu Toyoda“Key Strategies for Raising Sustainability of Asian Economic Growth in the Age of a Disrupted
World Economy”
By Japan SPOTLIGHT (Cover Story 1: Japan SPOTLIGHT November/December 2023 Issue)■Roundtable with Amitabh Kant, Prof. Shujiro Urata, Prof. Yukiko Fukagawa & Masakazu
Toyoda (Jan. 18, 2024)“India – the Future of a Powerful Country”
By Japan SPOTLIGHT(Cover Story 1: Japan SPOTLIGHT March/April 2024 Issue)■Interview with His Excellency Sibi George, Ambassador of India to Japan“India-Japan: a 1,000-Year Relationship that Is Skyrocketing”
By Japan SPOTLIGHT with Mohan Gopal(Cover Story 2: Japan SPOTLIGHT March/April 2024 Issue)

Naoyuki Haraoka is editor-in-chief of Japan SPOTLIGHT & executive managing director of
the Japan Economic Foundation (JEF).

Exclusive Interview

Leaders in Japan
No.1

Former Governor of the BOJ
Professor, National Graduate Institute for Policy Studies

Haruhiko Kuroda

Background of Japan’s Unprecedented Monetary
Easing & the Direction of Monetary Policy Hereafter
By Sota KatoJapan SPOTLIGHT starts from this issue a series of interviews with Japanese leaders attracting attention
with their views on various issues. Our first interviewee for the March/April 2024 issue is Mr. Haruhiko
Kuroda, former governor of the Bank of Japan (BOJ) and currently professor of the National Graduate
Institute for Policy Studies, who has drawn attention worldwide for his monetary policy during his tenure(2013-2023). The interviewer is Dr. Sota Kato, principal researcher of the Tokyo Foundation for Policy
Research and a member of Japan SPOTLIGHT’s Editorial Committee. He inquires mainly about thebackground of the BOJ’s unprecedented monetary easing and its possible future monetary policy. The big
question is whether this monetary easing will continue hereafter.
(Interviewed on Dec. 20, 2023)

Lessons from “Magnificent Experiment”
Kato: The unprecedented monetary easing you

adopted as governor of the BOJ was considered a“magnificent experiment” and attracted a great dealof attention around the world. I think it was a truly
pioneering policy. Could you tell us what lessons you
think there are from it for the rest of the world?
Kuroda: In the case of Japan, we had been in deflation for 15 years,
from 1998 to 2012. The average CPI rate of increase during thisdeflationary period was a negative 0.3%, a mild degree of deflation.
However, there were only four or five years during this period with apositive CPI rate of increase, and in all the other years it was
negative. Such a period of deflation had never been experienced byother developed nations. During this period, the rate of wage
increases had been on average a negative 0.9%, meaning roughly a
1% decline on average per year. Of these 15 years, there were morethan 10 that marked a negative rate of increases in wages. It was
extremely abnormal for such a situation to continue.
During this period, Japanese companies did not lay off permanent
employees, but instead dismissed non-permanent ones. Thus,though the official unemployment rate during these 15 years had
2 Japan SPOTLIGHT • March / April 2024

been around 5%, in reality it was worse than that. Furthermore, thecost to companies of keeping their permanent employees was sohigh that they would not recruit new employees during that period,and it became known as the employment “ice age” – a hard time forjob seekers.
At the BOJ we started quantitative and qualitative monetary easing
in 2013 to get out of this 15-year period of extraordinary deflation
and a worsening employment situation. The United States andEuropean countries as well might not have had any other choice but
to adopt such a monetary easing policy if they had found themselvesin a similar situation. So I think there is no particular lesson for othernations, as this monetary easing was precisely a response to Japan’s
unique economic situation. We needed unprecedented monetaryeasing to cope with unprecedented deflation, and I think all the major
policy authorities, central banks governors in the US and Europe, anddistinguished economists such as Joseph Stiglitz, Paul Krugman andLarry Summers with whom I have talked, understand this very well.

Background of Unprecedented Deflation inJapan
Kato: Why do you think such extraordinary deflation
occurred?
https://www.jef.or.jp/journal/

Kuroda: First of all, since 1990 we had been working hard for 10
years to deal with non-performing loans accumulated in our financial
institutions due to the bursting of the bubble economy. Thanks tothese efforts, in the 2000s Japanese financial institutions recovered
their capital mobility, but due to their experience during the collapseof the economic bubble, they have been pursuing extremely modest
business strategies and refraining from investing in or financing
projects with any risks.
Companies in Japan then were not willing to invest in facilities
after restructuring their business activities, and financial institutions
had become extremely reluctant to take any risks with their finances.
Also, the BOJ’s monetary easing policy then was not sufficient,although a number of anti-deflationary measures were taken by eachgovernor: a zero-interest policy and quantitative monetary easing
were implemented by Governor Masaru Hayami (1998-2003) and an
enormous expansion of quantitative easing was carried out by
Governor Toshihiko Fukui (2003-2008), which contributed greatly toraising prices. Then with massive intervention in yen-selling anddollar-buying, which became a sort of non-sterilization policy,
extraordinary yen appreciation was stopped and the yen ratestabilized. Then, there was a slight rise in price increases. Under
Governor Masaaki Shirakawa (2008-2013), a variety ofcomprehensive monetary easing measures were adopted to respondto external shocks, such as the 2008 financial crisis and the Great
East Japan Earthquake of 2011.
I think those governors implemented many anti-deflationary
policies and they were necessary and appropriate, but not sufficient.
We were then in a situation where corporate risk aversion continued
and prices dropped, and wages also declined due to insufficientmonetary easing by the BOJ during these 15 years.
I think there were three factors that caused the bubble economy inthe second half of the 1980s. One was the tremendous increase inpublic construction projects following the recession of the early
1980s, which stimulated investment in local tourism industries aswell. In Tokyo, investment in real estate had increased, with theJapanese government’s enhanced incentive to make Tokyo into a
global financial center. With these projects, real estate prices started
to increase in the first half of the 1980s and stock prices started torise in the second half. With such a solid background for inflation,
since the beginning of the 1980s the Japan-US Yen Dollar Committee
had been implementing financial deregulation. Banking transactions
were liberalized and the short-term fund market was expanded under
this initiative.

Furthermore, the extraordinary yen appreciation initiated by thePlaza Agreement had not been stopped in the late 1980s. The G7
tried to stop it with the Louvre Accord, but failed. Meanwhile,
Japanese monetary and fiscal policies continued to be expansionary
to cope with this yen appreciation. Japan’s macroeconomic
performance was at its best and realized 5% growth on average inthe second half of the 1980s for five years with the inflation rate
curbed at only 2.3% or 2.4 % per annum even at the end of the
1980s due to the strong yen. Business companies as well as financial
institutions made large-scale investments and stock prices soared,
with the Nikkei average having reached around 39,000 in 1989.
Against this background, the BOJ governor at the time, Yasushi
Mieno, oversaw the collapse of the bubble economy, regretting that aloose monetary policy had caused it. With the burst of the bubble,
share prices fell drastically, though real estate prices did not fall soeasily. Since then, the BOJ remained concerned about loose
monetary policy possibly triggering another bubble. As a result,
through the 1990s monetary policy had been delayed in acting tostop deflation, whereas fiscal policy tended to work more actively.
Then in 1998, with the new BOJ law, the bank became completely
independent from the government, and since then this reluctance totake an active loose monetary policy has remained robustly in the
BOJ policy mindset.
But under such changed economic and monetary situations,
without a drastic loose monetary policy we cannot improve theshrinking economy. The three BOJ governors implemented
appropriate policies, but they were insufficient, and this caused a
vicious cycle of simultaneous declines in wages and prices and theworst employment situation in the postwar period.
To get out of this, I pursued quantitative easing that had beenpreviously done and a zero interest policy, and also comprehensive
monetary easing through bond purchases and expanding this policyby massive purchases of long-term government bonds. With such
quantitative and qualitative monetary easing, we doubled themonetary base in two years and together with lowered interest rates
as a whole we tried to activate the economy. Our policies were
inevitable in responding to the unprecedented deflationary state. It
was not me but Governor Shirakawa who decided to adopt a 2%
inflation rate as a goal for price stability in January 2013. It was also
integrated into the BOJ-Japanese government joint statement andthus they decided to conduct monetary easing to realize 2% inflation
at the earliest time.
I was inaugurated as governor of the BOJ in March 2013. In theJapan SPOTLIGHT • March / April 20243

first monetary policy decision meeting in April, we adopted
quantitative and qualitative monetary easing. Prior to this decision,
we received many views on monetary policy from a variety ofexperts, including members of the BOJ Policy Board and BOJ staff.
There was a view that with the emerging two-year time lag in theeffects of monetary policy, even an ultra-loose monetary policy would
not bring us closer to the 2% goal any quicker. We discussed how
much we should implement these policies by examining simulation
outcomes based on various macroeconomic models.
There were two members of the Policy Board opposed to the 2%
price goal at the January meeting, but in April we reached aunanimous consensus on this quantitative and qualitative monetaryeasing. This policy’s scale was larger than the previous one and thequality was also different, but it basically remained a BOJ
commitment to get the country out of 15 years of continuous
deflation and realize 2% inflation as soon as possible.

Assessment of Global Economy & Japanese
EconomyKato: Next we move to current economic situations. At
this moment, I think the global economy has changed
from a deflationary state to an inflationary one, atleast in the short run, and on the whole it is
supposed to be moving in that direction a little more
continuously. What is your view on this and also
what is your outlook?
Kuroda: I have talked with many US and European economists andex-governors of central banks, and their predominant view is that theage of loose monetary policy is over in general.
With the start of the Ukraine war in 2022, wheat and energy prices
soared and that turned the deflationary state into an inflationary one
at once, against the background of prices rising after the worst of theCovid-19 pandemic was over. Then developed nations all started
tightening their monetary policies by raising interest rates in 2022.
So, the perception that the phase of loose monetary policy over the
past 10 years has ended now is commonly shared in the US andEurope. Meanwhile, high inflation rates are not likely to continue. So
the majority’s view in the US and Europe is that with the current
monetary tightening, inflation rates in the US and Europe will belowered and stabilized at around 2% in 2024 or 2025.
However, the situation in Japan is somewhat different. In Japan,
4 Japan SPOTLIGHT • March / April 2024with the quantitative and qualitative monetary easing adopted in2013, inflation reached around 2% but then dropped thereafter. This
could be partly due to a last-minute surge in demand before theincrease in the consumption tax and a reactionary decline after theincrease, but more largely due to the fact that wages were raised only
a little against price increases, resulting in a real wage decline. Withdeclining wages and the inflation rate decreasing again, we could not
help but expand quantitative and qualitative monetary easing.
One important development in monetary policy was theintroduction of a negative interest rate in January 2016. The
background of this policy was the continuing large decline in oil
prices from around $100 per barrel in 2014 to $50 and eventually$30 in January 2016, which had a significant deflationary impact on
our economy. In addition, with the depreciation of the Chinese yuan,
China started to export deflation to its trading partners.
Given these economic developments, we decided to further lower
the overall interest rate in addition to expanding quantitative easing
and we introduced a negative interest rate in January 2016, and in
September adopted the so-called yield curve control with a negative
0.1% policy interest rate and 0% in 10-year government bond yields,
and thus managed to realize this yield curve with a gradual slope.
During the pandemic, with the big fall in private consumption,
prices dropped, but afterwards inflation started to return as the
economy recovered from the pandemic’s negative impact, and thenwith the outbreak the Ukraine war, wheat and energy prices started
rising. Together with the yen’s depreciation, in 2022 Japanese importprices increased by more than 40% from the previous year. This was
naturally reflected in the CPI’s rate of increase, which having once
reached around 4% per annum is now around 3%. Unlike in the US
and Europe, in Japan most imports prices rise are reflected in the
CPI. The rate of increase in import prices is now negative and oil
prices are not expected to rise under the current circumstances, andthus the CPI’s rate of increase will be gradually stabilized.
In their Spring Labor Offensive in 2023 the unions decided todemand a 3.6% wage increase, the highest for 30 years. But therealized wage hike was around 2.5% and this means that real wages
are still declining, given the 3% rise in the CPI. However, this trend
seems likely to stop, as the unions will probably call for a 4-5% wage
rate increase in 2024 and so the real wage rate increase would bearound 3%. Assuming labor productivity increases around 1% perannum, we would need a 3% wage rate increase in order to achieve a
2% price rate increase in a sustainable and stable manner, and now
we can see that possibility. If inflation is stabilized at 2%, we would

not have to continue with monetary easing any further. We could
start normalizing finances and raise the policy interest rate gradually
towards neutral, and with this, the interest rate on government bonds
will start rising.
In the US and Europe in general, and also in Asia, monetary policy
is now returning to normal and the majority view is that the loose
monetary policy of the past 10 years or more will not be conducted in
the coming years. However, in Japan the situation is different due tothe bursting of the bubble economy and the long period of deflation
since 1990. Whether our economy has completely escaped from thisextraordinary situation will depend upon the Spring Labor Offensive
in 2024.

Social Norms in Prices & Wages in Japan
Kato: In your press conference on the occasion ofyour leaving the BOJ in April 2023, you mentioned
the robust and insistent norms in Japanese society inprices and wages as the reason for your having failed
to achieve the 2% inflation target in a stable manner.
You bravely tried a variety of policies to achieve thisgoal, but the triggers for the recent price increase
were external shocks to the economy such as the
pandemic and the Ukraine war. Do you think thepolicies you conducted will not be able to changethese norms?
Kuroda: Yes, certainly the social norms in Japan that prices andwages would not increase cannot be easily changed. From 2013 until
2019 just before the pandemic, inflation had been around 1% andwage increases had been even lower than that. On the employment
side, 40 million jobs were created and the unemployment rate was
2.5%. With such significant improvement in the employment
situation, a price increase to a certain extent was achieved but it
failed to reach 2%. It is true that this situation has been changed bythose two shocks – the pandemic and the Ukraine war.
But we managed to prevent the Japanese economy from falling
into stagflation in spite of the continuing pandemic and the Ukraine
crisis, with corporate profits doubling and 4 million new jobs created,both achieved by a continued monetary easing policy. Without thisimprovement in the economic situation, the yen’s depreciation due toprice increases for wheat and energy from the Ukraine war would
have provoked inflation and a significant negative growth rate at thesame time.
These norms that developed during the 15 years of deflation are
not easily broken. However, it is not right to say that we should haveset our inflation rate target at 1% instead of 2% under such insistentnorms.
Kato: I think norms is a kind of Nash equilibrium in theacademic sense, a situation where the mindset andbehavior of all are in accord. In deflationary Japan,
might this norm be a rational one simply reflecting
the socio-economic situation? Individuals andcompanies alike are anxious about the future andfalling into negative thinking about such issues as
depopulation and feeling that nothing positive will
happen to the Japanese economy, and that therefore
it would be better to save as much money as
possible rather than investing or consuming. Do you
think such a view on contemporary society has acertain logic and rationale in accordance with thecurrent economic situation in Japan?

Kuroda: No, that does not make sense at all. The population is also
decreasing in South Korea and Taiwan. In Europe as well, apart fromnations like Germany where immigrants now make up 25% of thetotal population, in many countries the population is decreasing, butthey are not suffering from deflation. It is wrong to think that
depopulation will lead to deflation. Depopulation would certainly
reduce consumption but also supply capacity as well. With adecrease in both demand and supply, we cannot tell whether an
economy would be inflationary or deflationary.
By coincidence, the Japanese working-age population started todecrease in 1995 and the total population started to decrease as wellaround 2001. This was noted against the background of 15 years ofdeflation. But after the introduction of quantitative and qualitative
monetary easing, 4 million jobs were created. It is certainly true that
population growth would significantly affect overall growth potential.
For example, the US economic growth potential is 1.5 or 2 and theJapanese one is 0.5 or 1, and the difference between the two is 1%,
corresponding to the difference in both nations’ population growth,
namely the US one is 0.5% and the Japanese one is a negative 0.5%.
On the difference in growth potential between Germany and Japan,
German growth potential is 1-1.5 with a 0.5 difference from theJapanese one, corresponding to the difference in population growth
Japan SPOTLIGHT • March / April 2024

5

between the two nations – that is, Germany is zero and Japan is anegative 0.5%. So it is true that population dynamics would affect themid- or long-term growth potential significantly, but population
growth is not the sole factor determining growth potential. Labor
productivity growth is another factor. With labor productivity growthhaving been little different between the US and Japan during these
10-15 years, the difference in their growth potential can be mostly
explained by the difference in population growth.

Prime Minister Shinzo Abe on the whole worked hard on structuralreform and fiscal support, as well as trying to save the Japanese
economy from the continuing deflation, which resulted in asignificant improvement in the employment situation and a certain
degree of investment recovery. But our efforts were not successful inachieving a virtuous cycle of wages and prices. Prices increased to acertain extent but did not lead to wage hikes. The mindset behind thisvicious cycle was not easily broken.

Kato: With a firmly established norm of notencouraging wage or price rises or investing, aperson or a company diverging from it would be aloser.

Kato: In Europe, there is a tradition of neo-corporatism,
collaboration in policy making between labor unions,business, and government. Did such a collaborative
mechanism exist in the Abe administration as well?

Kuroda: Yes, financial institutions also may have found it better not
to take risks. Business corporations with bad memories of the
bursting of the bubble hesitated to make new investments. They only
lower the prices of their products, not raise them, and employees
found it crucial to secure jobs rather than gain higher wages, andthus they were getting into a vicious cycle with a nearly 1% annual
decline in wages, mainly in bonus payments.

Kuroda: Yes. The Federation of Economic Organizations was also
working with us. But even with collaboration among the three, we
could not induce both labor unions and corporations to come back toa wage-price virtuous cycle after their 15-year experience of annual
0.9% wage declines and price falls, albeit little and gradual. At thismoment, with a more than 40% import price rise due to the Ukraine
war leading to a 4% CPI increase, the wage increase demand in the
Spring Labor Offensive would reach 3.6% in 2024, and we should be
able to break the last barrier to a virtuous cycle. In 2024, if weachieve a wage hike higher than the inflation rate, I expect that thebad norm will be completely broken and we will be able to realize the
2% inflation rate target in a stable, sustainable and continuous
manner.

Kato: I think the government and the BOJ shouldintervene to move the economy from a bad norm to agood one. I have the impression that the BOJ was
actively working on this in the monetary policy area
under your leadership. However, the other two key
policies needed to change a bad norm, namely fiscal
policy and structural economic reform policy, do notseem to have caught up with the BOJ’s efforts. Is it
necessary to have collaboration between the BOJ
and other public policy authorities to save theeconomy from a bad norm?
Kuroda: I do not think so. Under Abenomics, as you know, a wide
range of policy measures have been made, such as encouraging
women’s social activities, expanding support for raising children, andexpanding preferential tax treatment for GX or DX. Such policies
worked well, and the majority of the 4 million newly created jobs
were for women.
On the issue of raising wages, it was the ruling Liberal Democratic
Party, not the opposition parties, that was working with the JapaneseTrade Union Confederation in trying to do this. The administration of
6 Japan SPOTLIGHT • March / April 2024

The Cause of the Yen’s Depreciation
Kato: On the yen’s current depreciation, there must be

many factors behind it, such as the interest rate
differential between Japan and some other countries,or the Japanese economy’s growth potential. Whatdo you think about these factors?
Kuroda: When I was governor of the BOJ for those 10 years, theexchange rate was miraculously stable within a range of 10 yen at
about 110 yen to the dollar for nine of those years. Even after 15
years of deflation, the yen rate was more or less maintained. When
the Ukraine crisis started on Feb. 24, 2022, the rate was 115 yen to
the dollar. So it would be completely wrong to say that the yen isgetting weak because the Japanese economy is losing its

international competitiveness. The exchange rate cannot be explainedby such an argument. Of course, the mid- or long-term exchange rate
is fixed by a nation’s economic fundamentals. But the yen’s
depreciation that started in February 2022 cannot be appropriately
explained by such fundamentals.
On the other hand, looking at Japan’s current balance, often noted
as a good indicator of foreign exchange demand and supply, its
surplus has been expanding even with the trade balance in deficit. In
spite of that, the yen has not appreciated because with thetremendous increase in external assets, the surplus in the primary
income balance is largely increasing, even though there is deficit in
the trade balance in goods and services.
Returns on FDI or indirect investment overseas are counted in theincome balance, but it is another story whether such overseas
earnings will come back to the mother nation. Even with a large
current surplus, much of it will not necessarily come back to theforeign exchange market. Looking at the capital balance, there are
FDI and indirect investments, and the largest fluctuations in capital
movement are observed in the short term for indirect investments.
So the expanding interest rate gap has been increasingly affecting
these short-term investments. There was a narrative that although in
2022 in response to 8% inflation in the US and 11% in Europe, they
all at once raised their policy interest rates widely, Japan did notchange its yield curve control and then with the interest rate
differential between Japan and those nations expanding, the yen’s
depreciation was triggered. I do not believe it, because it depends on
exactly what interest rate differential is being referred to in thisnarrative – the short-term differential or the long-term one, or acovered interest rate parity or an uncovered one? It also depends onthe exchange rate to only the dollar or to other currencies like theeuro or Chinese yuan.
I would not predict any future exchange rate value. It is true that
the Japanese economy is now performing extremely well. We will see
economic growth in the 1% range continuously in 2022, 2023 and2024, meaning continuous growth higher than Japan’s growthpotential of 0.5-1.0%. Japanese corporate business profits reachedtheir highest in history, having exceeded those during the bubble
economy. The labor market is tight and there is even a shortage oflabor. In this light, the current yen rate is too depreciated and atsome point it will return to the level of around 110 yen to the dollar.
We cannot say when and how this will happen, since it will depend
upon market situations.
I think it is easy to predict interest rates, as it is basically to predict(From left to right): Interviewer Sota Kato, JEF Editor-in-Chief Naoyuki Haraoka, and former
BOJ Governor Haruhiko Kuroda

the central bank’s monetary policy. The central bank seems to control
policy interest rates only in general, but it does so by assuming any
rate change’s impact on mid- and long-term interest rates. Thus we
can have a correct prediction for either short-term or long-term
interest rates by predicting what the central bank would do.
Share price predictions may appear more difficult, but this isbasically equal to predicting corporate profits, and it would be easy to
predict them either this year or next year. But you would not be able
to correctly predict foreign exchange values, as it would need to bedone by taking account of expectations or speculation. Also,
government intervention in foreign exchange markets would need tobe counted as a final factor that we cannot predict at all. So I think it
better not to make any foreign exchange rate prediction.
Kato: Although we are not quite sure about achieving astable 2% inflation rate, we can see a little hope for itat this moment.
Kuroda: Yes, it is true. What makes Japan different from the US andEuropean countries is that they are now engaged in tightening
monetary policy by making rapid and significant interest rate hikes todeal with inflation. Japan is not in such an inflationary state and ispursuing its 2% inflation goal in a stable manner. We need to raise
the policy interest rate slowly to achieve it. The household sector inJapan has around 2,000 trillion yen in financial assets and it would
benefit from the possible rise in saving deposit rates. BusinessJapan SPOTLIGHT • March / April 20247

corporations owning great amounts of cash and deposits will not
suffer much from a little interest rate rise. The government itself will
be most affected by interest rate rises in Japan. With a gradual rise in
the policy interest rate, the interest rate on national bonds would rise,
and the government’s refinancing bonds or newly issued bonds
would be affected by such a rise. Assuming the average interest rateof all government bonds including short-term and long-term ones
was a little less than 2% around 2000, government bond interest
payments would amount to 30 trillion yen, which would create amuch bigger government expenditure increase than the 5 trillion yen
increase in defense expenditure or the 3.6 trillion yen increase ingovernment support for child-raising.

Possibility of the BOJ Falling into Excessive
Debt
Kato: As the interest rate continues to be raised, it has

been pointed out that the BOJ could be in excessive
debt due to increased interest payments on reserve
deposits. By holding such big “unrealized losses” ingovernment bonds not explicitly present inaccounting, could the BOJ achieve its mission by
maintaining market confidence?

Kuroda: The BOJ, the Federal Reserve Board and the European
Central Bank do not have market evaluations and so there would be
few occasions where they fall into excessive debt. But they could
have deficits. At this moment, the FRB and ECB have deficits and they
do not make payments to the treasury. The Australian Central Bank is
now in excessive debt and in its case, all of its assets are subject tomarket evaluation and with the interest rate raised, government
bonds would record a capital loss.
Although the BOJ, FRB and ECB do not have market evaluations
for government bonds, with the rises in policy rates their interest
payments on reserve deposits would increase. On the other hand, theinterest rate on government bonds will increase by the same degree.
Therefore, the difference in speed between reinvestment ingovernment bonds with higher interest rates and interest paymentson reserve deposits would determine whether the BOJ is in deficit.
If the interest rate on government bonds rises before the policy
interest rate, the BOJ replaces the government bonds on due dates
with ones with higher interest rates, so they would not be in deficit.
But if the policy interest rate is raised prior to the rate on government
8 Japan SPOTLIGHT • March / April 2024

bonds, as the due dates of government bonds come around only
slowly and if the speed of replacing them with new bonds with higher
interest rates is slow, then there would be a deficit and the BOJ could
not make payments to the national treasury. In the case of the FRB
and ECB as well, they raised policy interest rates rapidly and theirinterest payments increased likewise. But if there was not enoughtime for them to quickly reinvest in new government bonds withhigher interest rates, then they would have a deficit. In Japan, we
have an allowance for credit losses reserved annually with half of thedifference between interest payments on reserve deposits andoperational income from government bonds. So even with a loss
margin or deficit, we can use this allowance and the payments to thenational treasury would not be easily erased, and even if thisbecomes zero, it would only be temporary.
Kato: According to the latest BIS report on excessive
debt in central banks, they would not need to be so
anxious about it. Rather too much concern about iton the part of central banks could provoke a loss ofconfidence in them, which would make the situation
worst.
Kuroda: Yes. The Australian Central Bank is now in a deficit but it ismaintaining a presence of mind and behaving firmly.

Relationship Between Government & BOJ
Kato: The Japanese government and the BOJ haveoccasionally been in conflict, but I have theimpression that you managed this relationship very
well. Did you pay particular attention to preventing
conflicts with the government?
Kuroda: During my 10 years in office, I visited the Prime Minister’s
Office about twice a year and talked with the three premiers – Mr.
Abe, Mr. Suga and Mr. Kishida. On those occasions, I gave detailed
explanations of the BOJ’s monetary policy. In particular, I often met
informally with Mr. Taro Aso, deputy prime minister and financeminister, at various venues. I have never had any order or complaint
regarding our monetary policy from them. Under the current BOJ
law, the government does not have a way to apply pressure to the
BOJ. Under the old Act, the minister of finance could give orders to
the BOJ about policies, and he or she could dismiss the governor.

But the new Act eliminated such articles. Now, the BOJ is
independent from the government in its monetary policy decisionmaking, as is the ECB or the Bank of England.
Also, in the old Act, the Policy Board of the BOJ could decide theofficial discount rate and open market operations, but on reserve
ratio manipulation, government permission was needed. But now thispermission system has been abolished. Of course, it is the Cabinetthat appoints the governor, deputy governor and all the other Policy
Board members with the Diet’s agreement. During their five-year
terms of office, the government cannot pressure any of thosemembers to follow its own intentions, and thus it cannot force the
BOJ to buy more government bonds. The BOJ has been easing
monetary policy and purchasing lots of government bonds hitherto.
This is to bring the Japanese economy out of deflation and not tohelp the government.
Kato: The BOJ’s sharing of its 2% inflation target as apolicy goal with the government seems to be one of
the reasons for stable relations between the two.
However, after this goal is achieved and the BOJ
starts to exit from a loose monetary policy, might
there be some conflict with the government, inparticular on the question of public finances?
Kuroda: Yes. As you said, there is unlikely to be conflict in a situation
where both the government and the BOJ must continue efforts toachieve their shared policy goal of a 2% inflation rate. I do not know
yet whether any conflict between the two would arise over thequestion of increasing the government’s burden with government
bonds after this goal is realized and monetary policy becomes morenormalized. Whatever happens, the BOJ would not need to get any
instructions from the government and should not do so. I do notthink the BOJ would purchase government bonds to expand its
balance sheet and provoke serious inflation when prices and interest
rates are normalized. As I said, the government has no means topressure the BOJ and so I am not worried about the BOJ’s policy.
The concern is over the growing debt in public finances due toincreasing interest payments after the rise in the interest rate. The
government and the Diet must think about this question in depth.
Kato: If our inflation rate exceeds 2% and gets higher,
people may expect the BOJ to have anti-inflationary
countermeasures, contrary to the current situation. In

that case, the BOJ could be strongly criticized for its
long-standing monetary easing policy. At such times,
could the BOJ maintain what it believes to be arelevant policy without being influenced by outside
views?
Kuroda: It should do so since it is written in the law. In sum, inmonetary policy management, the BOJ’s most important goal is toachieve healthy economic development through price stability. Itshould not do anything against this goal. The old BOJ Act did nothave such a description of its mission, but this is clearly written in
the new one. Its first primary goal is to achieve price stability and thesecond one is to achieve stability of the payment system. The BOJ is
not responsible for achieving stability of the financial system. It is the
Financial Services Agency that is responsible for that. The BOJ has
had special finances for the banks exposed to crises that were a partof this payment system in order to stabilize it.
However, we have been trying to refrain from speaking about thewhole financial system, as we are not responsible for stabilizing it.
The FSA’s representative and the BOJ’s representative are membersof Basel Committee on Banking Supervision. In the Basel Agreement,a nation’s own government bonds should be risk-free and without
risk weight. But after Greece went bankrupt with lots of risk weight,
they discussed having a risk weight for each nation’s own
government bonds. This was not eventually realized, but anyway it is
not an issue within the BOJ’s jurisdiction. It would be meaninglessfor the BOJ, with no legal authority in financial regulations, tointervene in this issue. The BOJ must follow the rules of the BOJ Act
and do what is defined in this Act.
Kato: Thank you so much for your valuable comments.
Interviewer: Sota Kato is a research director of the Tokyo Foundation for
Policy Research. After earning a law degree from the University of Tokyo, hejoined the Ministry of International Trade and Industry (MITI, now the Ministryof Economy, Trade, and Industry, or METI) in 1991. At MITI and METI, he
served as assistant director for the Aircraft and Defense Industries Division,
deputy director for the International Economic Division, and senior fellow at the
Research Institute of Economy, Trade, and Industry (RIETI). He also served asassociate professor at Yokohama National University and professor at theInternational University of Japan (IUJ). He has an MBA (with honors) from
Harvard Business School and a PhD in political science from the University ofMichigan, and is concurrently a visiting professor at IUJ.

Japan SPOTLIGHT • March / April 2024

9

COVER STORY • 1

R

Roundtable with Yuri Okina, Kazuhiko Toyama, Prof. Kotaro Tsuru & Masakazu Toyoda

oundtable on Labor
Mobility & Human Capital
Investment

By Japan SPOTLIGHT
Participants: Yuri Okina, Chairperson, Japan Research InstituteKazuhiko Toyama, Chairman of IGPI Group, Industrial Growth Platform, Inc.
Kotaro Tsuru, Professor, Graduate School of Business & Commerce, Keio University
Moderated by Masakazu Toyoda, Chairman & CEO, Japan Economic Foundation (JEF)(Online Roundtable on Feb. 20, 2023)
Participants

Yuri Okina

Kazuhiko Toyama

Stagnant Economy & Employment System
in Japan
Toyoda: The Japanese economy has been stagnant for a very longtime – referred to as “the three lost decades”. There has been
increasingly strong criticism that this has prevented wages fromrising. For example, in the early 1990s the GDP per capita of Japanwas one of the highest in the world, but by 2021 it had fallen to 27th
in the world and closer to the lowest among the G7 nations. It was
not clear whether it was a macroeconomic or microeconomic issue.
One certain thing is that the wide range of policies adopted since thebeginning of the administration of late Prime Minister Shinzo Abe
have not necessarily been successful.
Recently, I think there has emerged an increasingly prevailing viewthat one important factor behind this stagnant Japanese economy
could be the limited capacity of the Japanese development model, as
characterized by lifetime employment and its seniority wage andpromotion system, which was dominant in the high-growth era, toadjust to the current low-growth economy. There seem to bestronger calls for labor market mobility as a key to achieving better
4 Japan SPOTLIGHT • May / June 2023

Prof. Kotaro Tsuru

Masakazu Toyoda

economic performance. Moreover, it is now being emphasized thathuman capital investment should not to be considered a cost but a
future profit-earning activity.
Today, we have three distinguished experts to discuss these twoissues of labor market mobility and human capital investment,
namely Ms. Yuri Okina, chairperson of the Japan Research Instituteand an expert on macroeconomic systems, Mr. Kotaro Tsuru,
professor of Keio University and expert on employment systems, andMr. Kazuhiko Toyama, chairman of Industrial Growth Platform Inc.
and expert on business and local economy restoration.
First of all, I would like to start discussions with the argument thatthe post-World War II Japanese economic development model with
its lifetime employment and seniority system has reached its limits.
Many companies in Japan today are changing their generalemployment system, in which new recruits become long-term
members of the organization, into job-specific employment, which
evaluates workers based on their skills and competence to replace
inefficient ones. Prof. Tsuru, will this become the new Japanese
economic development model? There may be concerns that it could
end up in increasing inequalities.
https://www.jef.or.jp/journal/

Tsuru: The importance of labor market mobility has been unchanged
since we took the first step in employment system reform in
discussions on regulatory reform under the Abe administration.
Thinking about the impact of the labor force on economic growth,
the continuing decline in the population will naturally mean ashrinking of the quantitative contribution of the labor force togrowth. In this light, it is said that we will need to raise its qualitative
contribution and for this purpose human capital management has
been considered crucial. We will also need to expand an individual
worker’s capacity and skills in tandem with this.
We must not forget about another possible positive impact oflabor mobility, that is, labor productivity being enhanced byrelocations and resources being transferred to high laborproductivity sectors. With closer matching between workers andtheir job type through improved labor mobility, both laborproductivity and economic growth would be encouraged.
Many economists say that raising labor mobility would always lead
to better economic performance and Japanese dismissal regulations
could prevent labor mobility. But there seem to be fewer who talkabout solutions specifically. I believe we should address thissensitive issue carefully.
On the effect of labor relocation on economic growth, among
many different analyses, looking at data on economic growth byindustrial sector or firm, we see rather less impact on economic
growth since the 2000s. In international comparisons as well, its
impact in Japan is today less than in the United States. In addition,
looking at an individual company’s labor mobility by turnover or midcareer recruitment, raising labor mobility a little more is expected toenhance a company’s business performance but raising it too much
could be detrimental to the company’s performance, according to myeconometric analysis.
I think what we need to do to improve our labor market situation is
to change the general employment system that developed in the
postwar era into a job-specific employment system. In my definition,
job-specific employment is one which sets no limits on working
duties, venues or hours. Japanese permanent workers are working
under the general employment system without limits on any of thesethree conditions. Such a traditional employment system in Japan has
resulted in high and stable economic growth, but with this condition
starting to collapse, it cannot be maintained. The Japanese generalemployment system has worked very well with progressive
innovation to improve quality. But when more disruptive innovationis needed, could the majority of a homogenous workforce under thissystem initiate such innovation?
I also believe that the Japanese seniority-based salary and generalemployment systems are closely connected, and that this prevents
labor mobility, since a salary would likely decrease with a change injob-specific employment. So I think what is most important for
raising labor mobility is to adopt job-specific employment instead ofgeneral employment.
On income inequality, I think there are two main reasons for this.
One is that with too robust Japanese general employment, Japanesecompanies have firmly protected the job specifics of middle-aged
and elderly workers but have failed to raise their wages. The other isthat they have been trying to employ non-permanent workers asmuch as possible instead of permanent ones to save on personnel
costs. This has resulted in the income gap between permanent andnon-permanent workers. So I think income inequality in Japan has
been caused by Japanese general employment as well. The nextquestion is how to reform general employment into job-specificemployment.
Toyoda: A question for Ms. Okina. Innovation and increased
productivity are needed in the Japanese economy. To achieve this,labor mobility is allegedly needed. But in reality, there are very few
people in Japan changing their jobs, though many workers are nothappy with their current job. There must be many people in Japan
concerned about a possible decline in their wages in a moremobilized labor market. One of the reasons for such concern is thewage gap between permanent and non-permanent workers. Do you
think this should be corrected? Saying that the same wages should
to be applied to the same job-specific workers is fine, but in reality
there is a distinct difference in wages between permanent and nonpermanent workers. What do you think about this situation?
Okina: Looking at Japan’s economic growth potential, it has been flator a little downward these past 10 years. Since around 2013, thanks
to Abenomics, more women and elderly people have joined the labor
force, which raised labor input a little and supported growthpotential. Nonetheless, with a continuous decline in productivity
growth, Japan’s potential growth rate is only 0.6 %, with productivity
growth at around 0.5%. This shows a severe reality compared with
30 years ago when the potential growth rate was around 4% and the
productivity growth rate was around 2%.
In international comparisons of labor productivity amongdeveloped nations, not only the rate of increase but also its level isextremely low, indeed almost the lowest. Such stagnant laborproductivity has resulted in the stagnant wages of today and thewage difference between Japan and other developed nations isenormous. Therefore, with such a low level of wages, large Japanesecompanies cannot recruit competent workers overseas in the global
competition for competent human resources. This is another reason
for Japan’s stagnant economy due to its lifetime and generalemployment.
In addition, non-permanent employees are today drasticallyincreasing, but investment in these human resources is not making
good progress. This is another big issue.
Productivity growth is significantly affected by a changing
business environment. Hereafter, industrial structural changes
triggered by GX or DX will affect it in our great revolutionary period.
On such occasions, without a system promoting the smooth transferof labor into high-growth potential sectors, overall productivity willremain in an extremely serious situation. Failing to achieve labormobility by transforming general and lifetime employment will be a
Japan SPOTLIGHT • May / June 2023

5

serious bottleneck for Japanese economic growth.
There may be psychological issues here, such as concerns aboutjob-specific changes impeding labor mobility, but also I believe there
are institutional issues affecting people’s behavior and preventing
employees from changing job-specifics. The government’s providingof a safety net is not working in favor of promotion of labor mobility,
and once you fail, you cannot start the next step.
The labor market in Japan is in a situation where a match-up
between labor capacity and businesses striving for competency is
not easily achieved. Retirement allowances are greater, the more
years employees have worked for the same company. The Japanese
tax system works in favor of such a retirement allowance system. An
employee who quits job-specific employment for his or her own
reasons will lose the provision of unemployment benefits for a shortperiod. This is another institutional hindrance to job-specific changes
or starting up new businesses. I think changing such systems is very
important.
Though the legal institution of “the same salary for the same
specific job” has been gradually introduced from FY 2020, the latest
data still show around a 600-yen per hour wage difference between
permanent and non-permanent workers. It is extremely importantthat we rigorously check corporate wage payments to prove “thesame salary for the same specific job” principle is being strictly
implemented equally among non-permanent employees who want tobe permanent, along with provision of reskilling opportunities.
At this moment, non-permanent workers’ wages are increasing
due to labor demand. But with insufficient social insurance for them,
they have concerns about the future and the risk of dismissal. Such
concerns directly lead to a lower birthrate. We should reform a social
insurance system that fails to meet the needs of an increasing
number of people pursuing diversified working styles, and create a
new one that meets a wide range of needs.
Toyoda: Do you think the Japanese government is aware of the needto reform the social insurance system and is working on it?
Okina: Discussions have already started, but what needs to be
examined from now on is how it should cover non-permanent
workers, freelance workers and other workers pursuing a diversified
work style.
Toyoda: Mr. Toyama, do you think the countermeasures to deal withbusiness stagnancy and business restoration will contribute to labormobility? In recent media reports, the news of the dismissal of
100,000 IT engineers in the US technology industry was considered
positive rather than negative. This is because there has been a steadydemand for technology experts in the environment sector that has
never been fulfilled due to their being in the IT business, but withthese dismissals many of them will be able to join the environment
sector. Could you tell us your story about business restoration andlabor mobility?

6 Japan SPOTLIGHT • May / June 2023

Toyama: Working in the real world, I find there is an enormous gap
between what the media talks about and actual business. Regarding
business restoration, I do not think labor is so rigid in Japan anddifficult to transfer. I think Japan is probably one of the best places
for restructuring in the world. In particular, since the start of thesecond Abe administration, if you ask for 500 applicants forvoluntary retirement you will get more than 1,000 applicants. In thecase of companies in need of business restoration, more than half ofthe employees working for such companies would give up
continuing to work for them. When seeking voluntary retirement withgood conditions, there will be many more applicants than expected
and many competent workers will apply. This is why Japan is in
general a country with a labor shortage.
In this regard, I do not think changes in dismissal regulations will
be important. In Japan, even the labor unions are ready to cooperatewith companies on restructuring, which often surprises Americans
and other non-Japanese. Japan has extremely high labor mobility interms of business restoration. In Japan, labor mobility may be anissue among large companies’ permanent employees, but apart fromthat the Japanese labor market is rather mobile.
For example, most of the employees of a bus transportationcompany are drivers and are working in job-specific employment.
Their labor mobility is high. At this moment, as the Covid pandemic
comes nearer to ending, 90% of the demand for bus transportation
has returned to the pre-pandemic level. We see now in this situationa serious shortage of bus drivers, but it is much more expensive toemploy freelance drivers using their own cars in service than an
employed company driver. The labor market for drivers is mobile andtheir wages rise in accordance with demand and supply, as with all
markets in Japan. If the market principle works in a mobile market,
wages will always increase.
A tighter labor market is going to be brought about by aging anddeclining birth rate. With general employment, the cost of switchinglabor becomes extraordinarily high and that makes it difficult for anindividual as well as a company to achieve labor mobility. In thissystem, in terms of the structure of a work contract, a permanent
employee in a company does not need to have any skill set otherthan being a permanent member of the company.
When we work on supporting a person’s job-specific change, whatembarrasses us most is that half of the skill sets of those we arehelping are connected to human relations within their company.
Separated from such relations, the value of those people’s working
skills would be lost and their salary lowered.
General employment works well in the industrial sectors where
progressive efforts to improve the quality of products amonghomogenous colleagues in a moderate transformation process leads
to enhancing the competitiveness of the whole company. In the higheconomic growth era in Japan, this was effective in most of the mass
production industries in Japan. However, at this moment, this does
not work at all in sectors like electronics. Arguments about ethics
and ideology concerning this issue are useless; this happened after
the 1990s during the disruptive innovation era when the speed of anindustry’s transformation exposed the failings of the generalemployment system.
This can be explained by the following figurative story. A company
needs to set up its own football team but has always done only
baseball. In general employment, they only have employees who play
baseball, and the coach and manager know only about baseball.
Would there be any young employees who could start playing
football, if they are told to do so by their boss? Something like thishappened to electronics, and Japanese electronics companies havebeen defeated by GAFA.
With the emergence of Chat GPT, I think this disruptive technology
could achieve unprecedented social transformation, such as mostjob-specific vacancies at call centers being lost. Specific jobs at callcenters are mostly for non-permanent labor and they will be gone.
This would be a drastic change in the labor market. Some Japaneseindustrial people may worry about the survival of the traditional
Japanese industrial model under GX, but I do not. Most likely, I
suspect a brand-new company that we have never heard of or a US
or European company purchasing such a company through M&A will
dominate GX in Japan. Insisting on general employment will not
result in winning in GX.
In this regard I fully agree with both Mr. Tsuru and Ms. Okina on
the need for job-specific employment to be expanded in Japan. I
would not say that sectors successful with general employment must
be changed as well. Let them carry on as they do now. But so many
legal systems and business customs, including retirement benefits
and support systems for victims of unfair dismissal, encourage
workers to remain in the same company. These institutions
constitute a whole social system in Japan that evidently favors
general employment rather than job-specific employment, andpermanent workers rather than non-permanent ones, as theauthentic employment system and this enforces most labor to be
kept within this system. This works to the disadvantage of female
employment and lowers the productivity of Japanese labor. We mustneutralize all these systems that work against alternative ways of
employment. Otherwise, productivity and wages will not rise, andnor will the birth rate.

Human Capital Investment
Toyoda: The three of you agreed that the traditional employment
system needs to be corrected to raise labor mobility. On this issue, a
key must surely be human capital investment. Ms. Okina is warningin her papers that the level of human capital investment in Japan is
the lowest among developed nations. Companies are concerned
about the high possibility of their human capital investment during
increased labor mobility resulting in their employees’ transfer toother companies. So they do not seem to be highly motivated andworry about their human capital investment being a waste. Whatabout other nations? With high labor mobility, will there be lesshuman capital investment? Companies may not have an incentive forhuman capital investment in non-permanent employees. Does theclassification of permanent and non-permanent employees hinder
human capital investment?
Okina: Prof. Miyagawa at Gakushuin University and others made aninternational comparison of data on intangible asset investments
such as data processing, IT software services and intellectual
property rights in 2020. It showed that Japan and Germany are thelowest among the developed countries. Above all, Japan’s score isoverwhelmingly the worst in the domains of human capital
investment and capacity for organizational reform. In this regard, I
think low human capital investment level has affected Japan’scompetitiveness and productivity. The quality of labor made a rather
high contribution to productivity growth until the 1970s, but now its
contribution has become zero. In this light as well, I think efforts toenhance human competency will become extremely important.
Human capital investment will be necessary at all levels for all
people. Japan in particular has been ignoring until now the need forreskilling for data- and digital-related work.
This is commonly true of all sectors. In the case of job-specificemployment, we need to define all the necessary skills for a certain
specific job, and applicants for that job among a company’s
employees and from outside the company must be prepared to do it
and there must be investment in human capital to meet the skill
requirements for that job. This process could result in higher labormobility. A company should provide reskilling opportunities for
employees. This should be done not only to improve the value of thecompany but also to lead to an increase in wages and careerdevelopment for the employees. I think companies should introduce
job-specific employment as best they can and at the same time
provide a reskilling program for their employees.
Providing reskilling opportunities should be a means of retaining
those employees. If a company succeeds in convincing its
employees that their wages match their capabilities produced by its
reskilling program, their engagement with the company’s mission
and their incentive to work hard would be strengthened and would
lead to a rise in productivity. And if a company’s reputation for its
good contribution to employees and its simultaneous growth areuniversally acknowledged, it would be able to attract high-quality
human resources.
For example, AT&T did such reskilling and succeeded in attracting
competent human resources.
Also, in Northern European nations, job-specific changing iscommon and the goal is to transfer labor from low-productivity
sectors to higher ones. This is why their economic growth andproductivity continue to increase, enabling them to overcome
recession. Japan is expected to move in the same direction. In
Northern European nations, labor unions and employers are working
together on the smooth transfer of workers and reskilling. Japaneselabor unions must also change their mindset.
The classification of permanent and non-permanent employees isproblematic. We must think about this issue from a lifelong
perspective. Both women and men must occasionally work for only aJapan SPOTLIGHT • May / June 2023

7

short time due to family commitments. We must give up thismindset of measuring work performance by hours and insteadchoose the best work-life balance from a lifelong perspective andemploy people who want to be permanent employees as permanent
ones. This is how we can make the diversity of a work-life balancecommonly accepted by society.
Toyoda: The idea you mentioned that reskilling must be aimed
simply at retention of workers does not seem to be prevalent among
Japanese companies. A question for Mr. Toyama. You are giving
MBA lectures at university. What do you think about the relations
between business restoration and human capital investment? In yourview, in Japan how well does human capital investment achieve its
goal and what role does this play?
Toyama: When I studied the MBA program at Stanford University in
1990, Japanese companies seemed to have sent most of theiremployees to US universities for MBA or other programs. They
invested more in human resources then than they do now. But whenthose employees who earned MBAs after a couple of years’ study at
US universities came back to Japan to restart working for theirmother companies, they were told by their bosses to “forget about
what you learned in MBA programs”. This was because thecompanies’ sources of competitiveness were not especiallymanagement skills but progressive efforts for product quality
improvement at production sites, namely Total Quality Control (TQC)
and the Toyota Production System (TPS), as general employment
with lifetime employment and seniority wage and promotion systems
were predominant.
What we learned in MBA programs in the US was about strong
leadership and taking the initiative in directing management
strategies. However, we were all still very young, around 30 years
old, and we could not be head of a division after coming back to ourJapanese companies with their robust seniority systems. So we weretold that we should conceal what we learned in our MBA programsfor the next three decades until we became the president of ourcompanies, as we would become unpopular if advocating for arevolutionary business strategy among our Japanese colleagues,
who were used to only progressive process improvement undermuch less creative leadership. As a result, many MBA holders quit
job-specific employment in response to these words. Thinking about
why companies would be afraid of such employees leaving, as
mentioned in my story of baseball and football, it is because
Japanese business people have never thought in any logic but that of
baseball. If you aim to maintain the competitiveness of a company
only with baseball logic, you will have to invest in human resources
to win a football game or a breakdance. And assuming that demandfor baseball is decreasing, you would not be able to retain yourhuman resources. If you live in a situation where the external labormarket functions well without any barriers to job-specific changes,
the more competent workers will move to a company where they canplay football or breakdance. This is simply natural.
8 Japan SPOTLIGHT • May / June 2023

In this sense, human capital investment would naturally be a key
to the retention of human resources. With an increasingly welldeveloped labor market, mobility is significantly enhanced, and inorder to retain competent human resources you will need to raisesalaries as well. Managers who worry about competent and skillful
employees quitting are not qualified to run a company today.
At this moment, many young people are quitting job-specificemployment easily, especially the more competent ones. The
Japanese labor market is now seeing polarization. There is high labormobility among the extremely competent students. They move froma large company to a consulting company or a start-up company.
High labor mobility is seen among non-permanent employees aswell. But there is a highly rigid labor market between those two, andwith this market prevailing among existing large companies andlarge industries, unfortunately Japan as a whole nation is gradually
declining.
Meanwhile, as in the reality of business restoration, we are facing
labor shortages in general. This is true of management as well andthere is a strong demand for well-trained human resources inmanagement. There are lots of potential human resources amonglarge companies, so if they adopt job-specific employment, labormobility among industries or large companies and SMEs will beraised and the overall productivity of Japanese industries will beraised as well.
Strangely enough, while we are running seriously short of humanresources among local service industries with job-specificemployment, the large companies in Tokyo business districts arealways restructuring. In other words, in large companies withgeneral employment, there are always excess human resourcesamong the middle-aged and elderly. With the emergence of Chat
GPT, there will certainly be more excess labor. This is how we see avery distorted labor market in Japan.
Labor shortages made it difficult to achieve business restoration,
as I mentioned. Restructuring would not be a solution for it. We needto build up a system with labor mobility under which each company
pursues human capital investment, and unless we have job-specificemployment we cannot achieve it. In this situation, if we seriously
pursue job-specific employment, there will be a big opportunity for
the Japanese economy. I believe that now, right after the serious
stage of the pandemic is over, is the best time to achieve a largescale reform of the labor market. Above all, business leaders mustchange their attitudes and those who insist on old-style thinking
must be replaced. With such reforms, Japan would be reborn with amuch improved business performance.
Toyoda: Three or four decades ago, large companies, especiallylarge banks, sent many employees abroad to study. But now there
are very few. The number of people going abroad to study fromJapan has become much lower than those from China, and fromSouth Korea as well. I am worried that young Japanese people arelosing their ability to be “international”. What do you think about this,given that human capital investment would be good for retaininghuman resources? Many of the employees sent from Japanesecompanies did not return to their companies, or as you said thecompanies told them to forget about what they learned abroad.
Toyama: The easy answer to that question is that companies should
not treat such employees merely as rank-and-file workers. With
general employment, this happens. Japanese corporate culture inmany organizations like government offices and banks would notallow a 30-year-old person with an MBA to be the boss of 50-yearold employees. In this culture, those with MBAs would quit, and thecompanies, having seen many such employees quitting, say they will
give up their human capital investment programs for study abroad.
They are not even aware of being wrong, and I think such companies
or industries should disappear.
Meanwhile, consulting businesses are more active in sending
employees overseas to study with a money loan system. This issame as in the US and Europe. They send more and more employees
overseas with loans and the employees do not have to return themoney if they stay in the company for three years after returningfrom abroad. Our consulting business believes that three years stayin the company after studying abroad would be good enough for acontribution to the business. This is how our consulting business, on
the premise of mobility, approaches human capital investment. In theend, there will be many people with good potential joining acompany actively engaged in human capital investment. Without
making this virtuous cycle between labor mobility and human capital
investment, the more competent workers would be more likely toswitch from specific jobs, as the skill set is changing as time goes by
and each specific job becomes more based on expertise.
Meanwhile, traditional Japanese management pursues slavery. It
is used to the concept that your social status is fixed as a company’s
permanent employee and job-specific changes are out of thequestion. This Japanese “common sense” is wrong. We work in a
flexible manner and do different specific jobs in different places in
our life. We meet and work together temporarily in many places. Thisis the world’s common sense. Young people in Japan will not follow
Japanese common sense. We must change our mindset.
For example, we are now running a bus transportation company inlocal Japanese regions and around 5,000 employees are working forthis company. We have also been purchasing a variety of local
companies through M&A. Most of our management teams of thosecompanies used to work for big Japanese companies such as trading
houses, banks and various manufacturing firms. Their ages varyfrom the 30’s to the 60’s and all moved from those big companies,
including the Certified Public Accountant (CPA). If they had remainedat those companies, they would be rank-and-file employees, but inour companies they could be a president even while still in their 30’s.
This is how a traditional Japanese company wastes humanresources.
Toyoda: A question for Prof. Tsuru. You also argue that the value ofa company lies in human resources and intangible assets. Whathuman capital investment, including studying abroad, do you thinkshould be pursued? I think large companies would like to retain
human resources, while they cannot step into job-specificemployment without assuming labor mobility.
Tsuru: I fully agree with both Ms. Okina and Mr. Toyama. I think“autonomy of career” is the main reason why we need to pursue jobspecific employment. With general employment, an employee’s life isin the hands of his or her organization, and not his or her own. Thereused to be a consensus between the company and its employees that
nothing would be to their disadvantage regarding salary andpromotion. But today it is not necessarily the case anymore, as our
economy has been in low growth for many years.
It is extremely difficult for a large Japanese company’s
management in charge of personnel affairs to secure “autonomy ofcareer” for an employee. They would have to start in-house
recruitment. But without this, labor mobility cannot be achieved. I
believe reskilling is indispensable to ensure “autonomy of career”. It
is often said that there are general skills and company-specific skills.
A company cannot pay for a reskilling program for general skills in
the US or Japan, as it would be a waste of money if the employees
enrolled in it quit afterwards. An individual employee must pay for it.
But a company can pay for a reskilling program for a companyspecific skill, as this skill would only be used for the company.
In Japan, the main reskilling programs are on-the-job-specificones. The company-initiated training programs are not fordeveloping an expert’s skill but for improving the skills of an alreadygood employee. Reskilling is not done uniformly, as what is needed
as a skill for each individual naturally differs among employees.
Reskilling is limited to each specific job and thus, unless career
autonomy is secured, we can have very little meaningful discussion
about it.
Looking at examples of many companies’ reskilling programs, I
find the cafeteria method interesting. This gives employees a choice
between all kinds of reskilling programs where they can learn about
general skills – even those that prompt concern on the company side
about employees changing job-specifics after learning those skills.
Employees can choose freely whatever they want by considering
their future career path and what skills are needed for it. Somepeople leave their companies with those general skills. But such agood opportunity for retraining and capacity-building attracts more
people to these companies. Traditional Japanese companies do nothave such ideas. But companies that appreciate the need for career
autonomy and an individual employee’s capacity for development
and how to raise innovative human resources have already taken a
step into a new stage.
The Japanese government does not understand this point very
well. It is still thinking about policies on general employment and has
wasted expenditure on training that has nothing to do with career
autonomy. We must make reskilling programs that enable employees
to choose for the sake of their career autonomy.

Japan SPOTLIGHT • May / June 2023

9

Toyoda: This cafeteria method sounds very interesting. Are suchreskilling programs increasing in Europe and the US?
Tsuru: No, they employ people with such skills in the US and Europe.
It is a very typical Japanese idea to develop skills after joining acompany. Traditionally, Japanese companies recruit people without
any skills, and so they need training. In the old days, Japanesecompanies had a long-term perspective on capacity building. But
they have lost this now and their human resource development
quality is much lower, I think. In the US and Europe, someone withan MBA can work at a managerial level from the beginning of theircareer. It is assumed that they already have the qualifications to be a
manager. Those with such special skills will pursue a different career
path from those without.

Strengthened Labor Mobility & Local
Economy Restoration
Toyoda: Would raising labor mobility or consolidating human capital
investment also be desirable in terms of local economy restorationand supporting start-ups? Or what do you think is lacking in Japan inthese two areas? The Japanese government currently seems to be
making great efforts to support start-ups. What do you think will benecessary to avoid Japan being a Tokyo- and Osaka-oriented nation
as a result of these government policies?
Toyama: I have been working on start-up support mainly at the
University of Tokyo for 25 years, starting with founding the first
Technology Licensing Organization (TLO) in Japan. So far,
unfortunately, these start-ups have been Tokyo-oriented, but startups have now become the first choice of specific jobs among
graduates from the University of Tokyo and Keio University. They
want to start up a business even while at university if they can findgood seeds during their student days. And if they can’t find suchseeds while studying, they get job-specific employment tentatively at
consulting companies or thinktanks or government offices and thenwhenever they find good seeds for a start-up, they quit. This is often
seen now among young people in Japan. So even in Japan we see anecosystem of start-ups growing, like that at Stanford 30 years ago,
as there is a small market of experts who have founded ventures.
They are not particularly insisting on working in Tokyo. They are
rather liberal people. I think it is important to expand such a labormarket. It is also important to diversify the university intake withmore foreign students on campus to join the Japanese students.
Looking at the Asian and global political economy at this moment,
Japan is an attractive nation and it will be important to create venues
in prestigious universities such as the University of Tokyo, Waseda
University, Keio University and the Tokyo Institute of Technology
where liberal and confident diversified talents can come together,and then expand this to universities throughout Japan. This will be
critical in expanding the start-up movement today.
One more thing that should not be ignored is that a start-up is still
10 Japan SPOTLIGHT • May / June 2023

regarded as a marginal existence by those in the large businessestablishment. They still believe large companies are the mainstream
and tend to consider start-ups as “people doing something unusual”.
Yet it is the start-ups that have been driving economic growth inEurope and the US for the past 30 or 40 years, and so start-ups havenow become a mega-industry. It is common sense that start-ups are
the main engine of growth in our age of disruptive innovation, so forlarge enterprises to grow, a start-up’s new technology would be thebiggest engine for them.
In Japan, however, the government has committed the stupid
mistake of supporting existing pharmaceutical makers to develop a
vaccine for Covid-19. Pfizer’s vaccine was not developed by itself: it
was the German venture BioNTech that developed the vaccine andPfizer applied it for general use. BioNTech was founded by aGerman-Turkish immigrant couple and the technology itself wasinvented by Dr. Kariko Katalin, who was born in Hungary and moved
to the US. In this light, I think it is better to stop providing finance forlarge companies. The current boom in Japanese start-ups will be avery important development for economic growth and Japanese
universities may as well strengthen their efforts to raise humanresources for start-ups. It would be better if we made education on
start-ups an obligatory subject in liberal arts course at universities.
On the issue of local economies, there has been no lifetime
employment in local labor markets for a long time, since there were
no industries assuming general employment in local economies.
There are instead many job-specific employment opportunities inlocal economies that need to be restored. Tourism is based on jobspecific employment and health care and caregiving are also a typeof job-specific employment. These are the core industries in local
economies and this trend cannot be reversed.
In this regard, young people in local Japan regions have alreadystarted building their career paths on their own. They cannot
maintain their lives by continuing to work for a single company and it
is common for them to have a side business, and also many are
working in agriculture as well as their principal specific job. The
Japanese education system seems to fail to adapt to this reality.
Professional training or junior high-school, senior high-school anduniversity education are all part of a system for educating students tojoin companies with general employment. We should change a largepart of education in Japan into technology college education,corresponding to community colleges in the US and professional andvocational universities in Germany. Good local universities and inparticular private ones are mostly shifting to become such schools
and we should encourage this further and provide a variety ofrecurrent education to create local societies where young people
without much interest in working in Tokyo can enjoy their life.
In local Japanese economies there are many middle-scalecompanies and SMEs and it would be rather difficult to expect themto invest much in human resources development. It would be betterto have human resources investment with public support, as humanresources are a kind of public commons and we had better think
about strengthening it as a whole society.

The government may as well stop its subsidies for companies
investing in education like reskilling. With these subsidies,
enterprises would always fail to catch up with changes in industries,
because they would have an existing industry bias. Therefore, wemust have a system of subsidizing an individual directly or providing
options for everyone. With subsidies for an automobile company, themoney should not be used for investment in education for
individuals but for reform of the existing model of the automobile
industry. In the US and especially in Europe, subsidizing individual
workers is the trend. This is crucial for local economy restorationand particularly important for the tourism industry. The number of
employees in the automobile sector and in the tourism sector arealmost the same in Japan. The Japanese tourism industry currently
does seem to be providing a minimum wage for the labor market,
but if we can achieve a middle-class income in the tourism industry
it would herald a real transformation.
Employment in the automobile sector in Japan will definitely
decline. If the tourism industry can absorb this decrease inemployment and workers in this sector earn wages close to those in
the automobile sector, the Japanese economy will be whollychanged. This is what happened in Europe. The tourism sector there
is providing middle-class employment. In particular, in Switzerland
and Austria tourism is evidently a high-income industry. They have
many professional schools for experts in tourism, even graduate
schools. Graduates from these graduate schools can earn theequivalent of around 20 million yen in the tourism sector. Japan isvery rich in touristic resources and boosting tourism would be asolution for the restoration of our economy.
Toyoda: I would like to ask Prof. Tsuru about the role of provincial
universities in promoting start-ups to help restore local economies,
as well as the role of human capital investment and what is mostneeded for such investment.
Tsuru: I think it would be extremely difficult to achieve fundamental
reform of a university compared with other institutions. Universities
are exactly the opposite of a world dominated by generalemployment. Each professor is an independent business owner andthey do as they like. When any of them exercises a veto in decisionmaking, nothing can be achieved. So I think it would be difficult foruniversities to respond quickly to any developments in society atlarge. There would be no need for it.
Young people in Japan today, even if they do not start up abusiness, are more interested in consulting businesses or otherventures than large enterprises. Although the Japanese education
system is good for producing well-behaved people in a large
traditional company, people who are not well suited to that system
are the ones leading the ventures. The current Japanese education
system at all levels – elementary school, junior high-school, seniorhigh-school, and universities – does not aim at producing suchpeople. It is true, though, that for students in humanities as well,some Japanese companies have started job-specific recruitment andin some mega-banks professional recruitment has also started forcollege graduates. As this process continues, I guess students’
thinking about job-specific employment will gradually change.
Toyoda: A question for Ms. Okina. I think the one merit of thepandemic is that remote working has become fixed as a businesspractice. Will this lead to local economy restoration or start-up
support, and will it also encourage more women to work?
Okina: Around 30% of the nation’s workers have been forced to stay
and work at home. Most of them have been drastically changing theirthoughts about work styles and work-life balance. They are now
fundamentally skeptical about the utility of their previous work style,such as commuting by crowded train every day, and have come toacknowledge the importance of work-life balance after having
worked with their spouses in raising their children or doing domestic
chores. A hybrid style of working remotely and working at the officehas now become customary and a more flexible working style is now
considered important. Companies failing to provide such a working
style are losing their attractiveness. Consequently we now have a bigchange in our business world, and it is important not to reverse thedirection of such progress.
This must of course contribute to the restoration of local
economies and we now have more business opportunities online andmore online education opportunities, so we can both work and rest
simultaneously at home. This is how an increasing number of people
living in regional towns are engaged in a wide range of work.
Meanwhile, it is also possible to help local companies as a sidebusiness while living in Tokyo. People in their 40’s or 50’s working
for a large company who could not fully take advantage of theirpotential capacity are now given an opportunity to use it with thehelp of DX. This has enormous implications. The moment has finallycome to think about how to take advantage of DX for the restorationof local economies in alliance with universities, business firms andlocal governments.
Working at home could have certainly a positive impact on startups or working women, and this is good news for people obliged tostay at home to raise children or support their family or who wish
they could do housework and office work at the same time. There are
an increasing number of women engaged in regional start-ups, but
start-ups by women still account for only 34% of all start-ups. Of
this figure, incorporated ones account for 14% , and in terms ofprocured capital, only 2% of the companies have women as top
management. This is how women initiating start-ups are facing
challenges such as limited access to funds and lack of a supportive
community.
However, young people, in particular women, are very keen on
resolving social issues and they have their own unique ideas. I think
it is a very good idea for women to take a leading role in start-up
businesses. Young people are flexible in their thinking and working,and more of them can become role models.

Japan SPOTLIGHT • May / June 2023

11

Final Words
Toyoda: Lastly, I would like each of you to give your final words on
what you would most want to emphasize.
Tsuru: Without breaking the solid Japanese employment system andgeneral employment, the wide range of economic challenges facing
Japan cannot be resolved. Reskilling and raising labor mobility, as
the Japanese government is promoting, cannot be achieved without
the realization of job-specific employment. I would also recommend
promoting work on side businesses. This should also be achieved on
the premises of job-specific employment and career autonomy. The
government must do its utmost to realize this, but the key is achange in business management and labor union policies.
Both management and labor unions advocate for the current
unbound permanent employee system or general employment. With
the introduction of job-specific employment, for management, theexisting simplified personnel policy decision should be given up. For
labor unions, though there may be many who enjoy a more
comfortable working environment with it, they do not like taking any
risk with any member’s specific job. In return for keeping theexisting employment system, they would not ask for any rise inwages. This has continued for several decades and has been binding
the whole Japanese economy.
In talking about employment of senior people until the age of 70,
whether they stay in the same company or go out of it, there would
be nothing but job-specific employment for them. So we must
introduce job-specific employment at an earlier stage of life. As
society is aging, our economy will hit a stumbling block if we do notconvert our employment system into a job-specific one. Thispressure from the aging of society in Japan could be a trigger for
fundamental reform.
Okina: First, we must introduce more creativity and the capacity for
problem solving in the early stages of education at elementary
schools or junior high schools. This should lead to entrepreneurship.
Correcting our uniform education system and uniform humanresources management would lead to the creation of added value.
My second point is that we must have an employment system inwhich individuals can choose from a variety of options for theirworking life until around 70 years old. With reskilling or recurrent
education in this employment system, we could overhaul our
existing seniority system and achieve high labor mobility. That would
lead to the restoration of the Japanese economy.
Lastly, we should build up a safety net for non-permanent
employees so that they can have opportunities for reskilling and get
better job-specific employment.
Toyama: More than 150 years have passed since the Meiji
Restoration in 1867. At the beginning of our modernization, we
pursued a wealthy state and strong military. The pursuit of a strong
military led to failure in World War II, but pursuit of a wealthy state
12 Japan SPOTLIGHT • May / June 2023

has been continuing. In our industrialization in this pursuit, we
adopted a system in which men were bound to their companies aspermanent employees and their lifetime security was assured until
retirement age as long as they were bound to it and their wives werebound to home. This was the standard model in which progressive
product reform was conducted stably and which worked particularly
well in the Showa period.
This model, however, has recently reached its limits. There is aperfect mismatch with the current Japanese social and industrial
structure. This is the fundamental reason behind our three decadesof depression. Without changing the old system, Japan will haveanother three lost decades. It is now that we must start thinking
seriously about reforming it.
Meanwhile, people are living around 30 years more after
retirement in our now aging society. To ensure a happy life for ourelderly people, we must take advantage of the current labor shortage
and take the opportunity to introduce job-specific-type employment
replacing general employment that does not cover people beyond
retirement age. Without leaving this general employment systembehind, we cannot achieve renewal of our industries or businesscorporations. Our safety net has been dependent on companies andhomes up to now. With the collapse of this dependency, there could
be a risk of social collapse in Japan, and this is why we may havebeen trying to avoid drastic reform. But our productivity has notbeen rising and wages have been decreasing. The percentage ofpermanent employees covered by general employment has been
declining and the percentage of unionized labor is now less than
20%, meaning around 80% of the nation are now not covered by theold system. Therefore, as the authentic majority are the people
outside permanent general employment, politically speaking thenation must change direction to include individuals in the safety net,without depending upon intermediary organizations or homes. This
would be possible for the first time with the introduction of jobspecific employment. Now is our opportunity for socialtransformation.
Toyoda: Thank you all so much and we sincerely hope you areplaying leadership roles in our social reform. We are happy tosupport your initiatives.

Written by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, with theassistance of TapeRewrite Corporation.

COVER STORY • 1

W

hat Must Be Done to Maintaina Population of 100 Million in
Japan? (Nov. 7, 2023)

By the Working Group for Japan’s Population Challenges

1. The Current State & Challenges of Our Country’s
Declining Population(1) Current situation

hours spent in the workplace. This presents an obstacle forbalancing work and childrearing responsibilities.
With the restriction on time and income, an increasing number ofhouseholds want children but either cannot have them or have fewer
than they want. Japan is a notable case study in this dynamic. Many
young people migrate to major metropolitan areas like Tokyo. Theyleave behind a rural economy that struggles in the wake of urban

4 Japan SPOTLIGHT • January / February 2024%

10,000 people

The decline of birth rates and the aging of the population in Japan
have been particularly prominent compared to that of othercountries. This has resulted in projections of a drastic population
decrease in the years to come. As of 2022,
Japan’s population was 124.95 million,
CHART 1
according to projections by the National
Japan’s population trend, total fertility rate
Institute of Population and Social Security
80.0
14000
Research and the Ministry of Internal Affairs
124.95 million people
and Communications. However, the population
70.0
12000
is forecast to drop to 105.1 million in 2055, fall
151 million people
60.0
below 100 million in 2056, and further drop to
10000
87 million by 2070. In 1970, the birth rate was
50.0
over 2.1, but by 2022 it had fallen to 1.25. Not
8000
40.0
only did the actual birth rate decline, the
38.7
6000
number of children that people desire to have
30.0
7420
also dropped from 1.83 in 2010 to 1.55 in
4000
2020. In tandem with the overall population
20.0
4535
decline, the working-age population (15-64
2000
10.0
years old), which is currently around 75 million,
is expected to fall below 50 million in the early
0.001970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2022 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070
2050s. Similar declines are projected in the
Population under 14 years old
From 15 years old to 64 years old
Over 65 years old
working-age population and labor force
0-14 years old
Proportion of population aged 15 to 64 years old
Ratio of seniors
participation rate (Chart 1).
The underlying context is that a significant
2.20
2.13
portion of the population choose not to getmarried. The 2022 edition of the Gender
2.00
Equality White Paper by the Cabinet Office
1.80
indicates that 40% of men and 50% of women
opt out of marriage because they want freedom
1.60
and independence. At the same time, there areworsening economic and employment
1.40
landscapes symbolized by economic
uncertainty and stagnant wages. Yet, despite
1.25
1.20
these economic pressures, educational costs,
including expenses beyond school tuition (such1.001970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2022 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070
as cram schools on top of regular school fees),
continue to rise. In addition, the rigid work
Source: Created by research group members using statistics from the National Institute of Population and Social Seucrity
Research, Ministry of Internal Affairs and Communications, and United Nations
culture places a premium on the number ofhttps://www.jef.or.jp/journal/

concentration and economic stagnation. The resulting decline in ruralvitality has become a major issue. This manifests itself as a crisis in
the form of severe strains on local finances.
Furthermore, Japanese society as a whole lacks the collective
spirit of nurturing and watching over children. It is essential for thenation to cultivate such a consciousness on the national level.

As more seniors remain active, there could be a growing demand
for robots that assist them at work. This need may spur thedevelopment of new technologies and escalate investments aimed at
supporting older workers, fueling economic expansion. If Japan can
thrive in the senior care technology and export their expertise toother rapidly aging countries, it might mitigate any decline in Japan’snational power.

(2) Challenge
The biggest adverse impact of the population decline lies in thestunting of economic development due to the shrinking labor force.
That, in turn, leads to a loss of vitality in society, deteriorating social
security foundations, and other issues. Additionally, the reduction ofdomestic consumption will manifest as a shrinking domestic market.
This trend is likely to negatively affect corporate capital
investments. Although it may seem desirable to relocate business
operations overseas, there are limits given the current rise ingeopolitical risks.
Japan is also a global frontrunner in aging. According to UN
projections, the proportion of the population aged 65 and above will
be around 38% in 2065, placing Japan second after South Korea(Chart 1).
a) Decline in national power and economic strength

Supply side economic growth is driven by three forces: capital,
labor, and technological progress. A useful method to analyze thesefactors is “growth accounting”, which reveals how much technology(total factor productivity), capital, and labor each contributes toeconomic growth. It is clear that with a reduced workforce due to an
aging society and population decline, supply-side growth will be
negatively impacted.
Opinions differ on how population decline will affect aggregate
demand, and there is no clear-cut answer. However, surveys show
the elderly tend to spend less than working-age families, possibly
leading to a drop in overall demand for goods. This decrease in
consumption could signify a contraction in domestic demand for
producers, which in turn could dampen demand for capital
investments by companies. Corporations then would have reduced
financial leeway to innovate technologically, potentially leading to anegative impact on total factor productivity.
On the flip side, an aging demographic might actually fuel demandin sectors like health care, nursing care, and medical services.
Moreover, a surge in investments from businesses has the potential
to drive technological advancements. This could be spurred by a
growing global interest in Japanese products, a rise in tourism, andmore women entering the job market, all of which could offset the
dip in consumer spending typically associated with an older
population.

b) Increased fiscal burden

Increases in fiscal expenditures, such as growing social security
costs that arise from an older population, will pose significant
challenges (Chart 2). If technological innovation fails to progress andinternational competitiveness remains low, the current accountbalance will fall into the red from a decline in earning power. Coupledwith fiscal deficits arising from an increased financial burden, this
could result in twin deficits, potentially reducing the creditworthinessof Japanese government bonds. This, in turn, could trigger a plunge
in bond prices, and national bankruptcy could become an imminent
reality.
Some research also suggests that aging affects the efficacy offiscal and monetary policies. In the DSGE model where two groups
of working and elderly people coexist, it is pointed out that as the
proportion of the elderly increases, the effectiveness of monetaryand fiscal policy decreases (Naoyuki Yoshino and Hiroaki Miyamoto,“Declined Effectiveness of Fiscal and Monetary Policies Faced with
Aging Population in Japan”, Japan and the World Economy, Vol. 42,2017). The intuitive reasoning is explained as follows:
In the realm of monetary policy, reducing interest rates typicallyencourages corporate investment, which in turn can boost company
revenues. This often leads to higher wages for employees, who thenhave more to spend, further propelling consumption and aiding
economic recovery. However, in an aging society where retirees do
not directly benefit from wage increases, the stimulative impact of
low interest rates may be diminished.
Fiscal policy is also less effective in an aging society. Keynesianfiscal policy argues that increased income through the promotion of
employment leads to a recovery in total consumption, which,through the multiplier effect, leads to economic recovery.
However, as the number of retirees increases, fewer people will belooking for new employment opportunities, thus reducing thepolicy’s effectiveness (Hiroaki Miyamoto and Naoyuki Yoshino,“Effectiveness of Fiscal Policy in Aging Economies”, Policy ResearchInstitute, Ministry of Finance, Japan Public Policy Review, Vol. 17,2021).
In summary, the prospect of sustaining economic growth in theface of an aging and declining population hinges on technologicalinnovation that nurtures emerging senior-focused markets.
Japan SPOTLIGHT • January / February 20245

CHART 2

Trends in social security benefit payments(Trillion yen)
140
130
120

1970
Gross Domestic Product(trillion yen) A

1980

1990

2000

2022
Budget Basis

2010

75.3

248.4

451.7

537.6

504.9

564.6

Total Amount of Benefit
Payments (trillion yen) B

3.5 (100.0%)

24.9 (100.0%)

47.4 (100.0%)

78.4 (100.0%)

105.4 (100.0%)

131.1 (100.0%)(Breakdown) Pensions

0.9 ( 24.3%)

10.3 ( 41.4%)

23.8 ( 50.1%)

40.5 ( 51.7%)

52.2 ( 49.6%)

58.9 ( 44.9%)

0.6 ( 16.8%)

3.8 ( 15.4%)

5.0 ( 10.6%)

11.3 ( 14.4%)

19.5 ( 18.5%)

31.5 ( 24.0%)

Medical Care110

Welfare and Other

B/A

100

2.1 ( 58.9%)

4.7%

10.8 ( 43.2%)

10.0%

18.6 ( 39.3%)

10.5%

26.6 ( 33.9%)

14.6%

33.6 ( 31.9%)

20.9%

40.8 ( 31.1%)(10,000 yen)
131.1

100

105.4

23.2%

80

70

78.4

Medical Care60

Welfare and Other70

Pensions

Social Security Benefit Payments Per Capita

60

50Social Security Benefit Payments Per Capita (right scale)

50

90
80

90
Pensions

110

47.4

40

40

30
24.9

30

Medical Care

20

20
10
0

0.1

0.7

1950

1960

10

3.5

1970

Welfare and Other

1980

1990

2000

2010

0
2022
(Budget Basis)

Note: The numerical values in the figure represent social security benefit payments (trillion yen) for the fiscal years 1950, 1960, 1970, 1980, 1990, 2000 and 2010 as well as FY2022 (budget
basis).

Source: Ministry of Health, Labor and Welfare estimates for FY2020 – FY2022 social security benefit payments (budget basis) based on the “FY2019 Social Security Cost Statistics” from the
National Institute of Population and Social Security Research; FY2022 GDP is according to the “Economic Outlook and Basic Stance for Economic and Fiscal Management for FY2022”(Cabinet Decision on Jan. 17, 2022)

Additionally, it relies on establishing social systems and norms thatencourage the ongoing engagement of seniors in society andpromote an “active life expectancy”.
c) Security implications

Japan is experiencing a population decline driven by fewer births
and an aging population. The consequent decrease in GDP can alter
power dynamics in international politics and affect national security.
Countries with smaller economic power and fewer resources need toboost their diplomatic efforts to secure their influence and impact oninternational discourse and security. In particular, they muststrengthen their alliances to enhance their deterrence capabilities. To
offset the shrinking pool of young men who traditionally underpin
military strength, it is vital to invest in new military technology.
Japan had historically leveraged its technological and economic
advantages to attract top international students from across Asia and6 Japan SPOTLIGHT • January / February 2024

beyond. Many of these students attained prominent positions once
they returned to their respective countries. Their strong educationalties to Japan enhanced economic and diplomatic relationships with
their countries. However, with the waning of Japan’s national power,international students are choosing other destinations, such as
Europe, the United States, and China. Regrettably, this trend erodes
the strength of Japan’s foreign policy. The weaker yen has also
diminished Japan’s status as a “high-wage” country, which results ina smaller number of aspiring nurses immigrating from other parts ofAsia. Japan’s image as a hub for talented professionals from Asia isundergoing major changes.
We must mitigate Japan’s national security risks in Asia that arise
from a population decline and shrinking economy. The following aresome considerations we must bear in mind.
In 2005, Japan became the first “super-aged society” with over
20.2% of the population aged over 65. More than 20% of thepopulation are now classified as seniors. South Korea and Taiwan
are not too far behind, with China and Russia close on their heels. By
2035, these nations are projected to have average ages ranging fromthe mid-40s to mid-50s. In contrast, countries like India, Indonesia,
the Philippines, Vietnam, and Malaysia anticipate a growing youth
population with average ages expected to remain below 40.
This shift in demographics could mean a reduction in Japan’s SelfDefense Forces. They may well face serious problems in recruiting
personnel. However, Japan’s defense spending is actually increasing.
The administration of Prime Minister Fumio Kishida aims to raise it
to 2% of GDP by 2027. Japan’s fiscal deficit is already the largest
among developed countries created by an imbalance between the tax
burden on citizens and government expenditure. Increased defense
spending could exacerbate this trend.
In the context of Asian regional security, Japan faces not only
longstanding threats but also newer ones. These include cyberattacks, space security, pandemics, and climate change. China’s
growing military assertiveness and potential conflicts over Taiwan
are issues as well. There are also territorial disputes in the East andSouth China Seas, North Korea’s nuclear ambitions, the divided
Korean Peninsula, damage from piracy, and the proliferation of
weapons. These diverse threats mean that we must closely examine
how demographic challenges may influence the strategic perceptions
and reactions of the countries involved.
For cyber countermeasures, we must also address how Article 21,
Section 2 of Japan’s Constitution severely limits intelligencegathering and reconnaissance. This constrains information sharing
between Japan and the US. Among developed nations, the US stands
out in its resilience to the impact of population decline. It will no
doubt remain a central player in the regional security policies of its
Asian allies.
Furthermore, when evaluating security frameworks, it isincreasingly important to factor in shifting population trends inregions like Africa. As there are changes in the economic scale of the
US and China, it is critical to take into account the internationalsituation in regions outside of Asia.

2. Policy Direction & Measures to Sustain a
Population of 100 Million
The combined forces of a falling birth rate and an aging population
are expected to have a severe negative impact on economic vitality. A
contraction of the domestic market is likely, and as a result,consumption and investment may stagnate. This could then diminish
international competitiveness, potentially leading to a current
account deficit.
Concurrently, in an era of meager economic growth, the fiscal

burden heightened by an aging population may lead to chronic fiscal
deficits. Such circumstances could precipitate a situation known as“twin deficits”. Prices of government bonds plummet and trigger theflight of capital, which then endangers fiscal management. In theface of such a crisis, sustaining the social security system will pose
an increasing challenge. As the population continues to age,ensuring equitable distribution will become increasingly complicated.
Moreover, there will be significant difficulties in averting thedownturn of local economies.
Within the international arena, this shrinking of economic scale
will result in diminished clout. In the current climate of escalating
geopolitical challenges, such a contraction poses significant security
risks.
Some take the view that as long as per capita GDP does notdecrease, it will feel as if the economy is prospering. But the fact ofthe matter is that as the work force shrinks, the working-age
population will bear an increasingly heavier social security burden for
their elders. This brings to surface the inequality between
generations. Therefore, per capita GDP divided across the total
population is no longer a significant way to gauge the nation’s
prosperity.
When you take these factors into consideration, the national goalthat the Cabinet of late Prime Minister Shinzo Abe put forth in June2014 seems appropriate. His administration formulated a basic
policy (also known as the “Grand Design”) for economic and fiscal
management reform. Projecting 50 years into the future, the aim wasto sustain a population of approximately 100 million people in the
2060s. To achieve this goal, this policy needs to be carried out
across different areas.

(1) Policies to increase birth rate
It is not enough to simply implement economic strategies to boost
the birth rate. It requires cultivation of a national mindset thatrecognizes children as treasures of society. The government should
strive to foster this perspective beyond merely providing family
allowances. To address the root cause of low birth rates, theunderlying economic structure that leads to static wages must be
targeted. To enable the younger demographic to earn more, we mustat least implement the policies enumerated below.
a) Review of Japanese employment practices and policies toincrease labor market flexibility

The labor market should increase its flexibility so that individuals
can work in a way that suits their lifestyle, while also increasing theirproductivity.
In a dynamic labor market where jobs, workers, and resources canJapan SPOTLIGHT • January / February 2024

7

move more easily in response to market demands, workers are more
likely to be matched with jobs that suit them well. That should
increase individual productivity. Also, as the industrial structurechanges, labor is redistributed smoothly. This leads to a vibrant anddynamic economy that fosters high labor productivity, resulting inhigher wages.
At the same time, Japan should shift away from its traditional
lifetime employment and seniority-based systems. We should
instead adopt a system where employment is based on job roles
coupled with objective performance evaluations, thereby enabling aperformance-based pay structure. Currently, there is a significant
wage gap between regular and non-regular employees, which is a
key factor in Japan’s low wages. To rectify this issue, Japan needs toenforce the principle of equal pay for equal work.
In concrete terms, this means overhauling the evaluation systems
across the public and private sectors. This entails transitioning awayfrom wages based on seniority rather than performance. It is crucial
to abolish mandatory retirement. In point of fact, discrimination
based on age is not allowed in the US. For example, it is not unusual
to see academics actively contributing well into their 80s.
Furthermore, it is important to establish severance packages for
employees who have been dismissed. We must also reevaluate the“income wall” which effectively reduces a family’s yearly income if
the housewife obtains part-time work. Under current law, ahomemaker earning part-time income could increase the family tax
burden because her wages are excluded from her husband’s income
tax deduction for spouses.
The government is currently considering a temporary system thatwill allow the homemaker to be covered under her husband’s social
insurance without having to pay for her own even if her annual parttime wages exceed 1.3 million yen. This is meant to be a provisional
measure in place for about three years. More effective solutions arebeing considered. For example, the government might provide
subsidies to companies that give their employees bonuses toincrease their income or help with their insurance costs.
Developing personal skills is a vital task. It is important to support
this by introducing tax incentives. A “self-development preferential
tax system” would allow individuals to deduct some of their selfdevelopment expenses from their income taxes. This could replace
the “Special Deductions for Learning and Relearning Expenses
Provisions” that are currently in effect. Right now, the employer has
to provide proof of such expenses. Under the new system, acertification from a career counselor would be enough to qualify forthe tax deduction.
Skill development seminars can be very costly. It is essential toexpand remote education opportunities not only for students but forworking adults as well so that anyone can tap into the expertise of
8 Japan SPOTLIGHT • January / February 2024

Japan’s top instructors at any time, from anywhere, 24 hours a day,throughout the year.
The current system and policies that disadvantage labor mobility
must be phased out. These include the Retirement Allowance
Preferential Tax System and Employment Adjustment Subsidies,
which hinder labor mobility. The tax incentive for retirement
allowances works to keep lifetime employment in place, while
employment adjustment subsidies are meant to offset the costs
companies have to bear when employees have to take time off orrequire training. Because of these subsidies, employees’ wages often
remain unchanged, which can lead to less motivation to work. At thesame time, companies become more dependent on these subsidies.
Finally, to ensure equal pay for equal work, the Ministry of Health,
Labor, and Welfare is expanding coverage for employees’ pensions
by making it easier for part-time and other short-time workers toqualify. These policies are vital for enhancing labor market flexibility.
b) Creating attractive employment opportunities in ruralareas

The population is concentrated in major metropolitan areas. Whilerural regions face a larger decline in residents, their abundant tourist
resources give them a great potential for growth. It is therefore
crucial to create attractive employment opportunities, such as in the
tourism industry. Innovative approaches to shore up the tourism
sector are gaining attention. These include eco-tourism initiatives
that blend agricultural experiences, tours of renewable energy
industries, and educational programs to inform tourists about
environmental issues. Focusing on these approaches and actualizing
potential growth industries like tourism can help generate appealing
job prospects and increase the rural population.
Before the Covid-19 pandemic, tourism was a major source of
foreign income for Japan, second only to the automobile industry.
(In 2019, tourist spending came in second only to car exports.)
Looking to the future, international tourism is expected to rebound. It
is vital to promote travel across Japan’s diverse regions. The
government is actively working to stimulate tourism in these areas
by providing incentives for foreign tourists to spend two nights inmore remote districts. Support is also being channeled into new
infrastructure like hotels and transportation networks. The
government will also back training programs for local tour guides
and service staff, which include English language lessons. In
addition, it is crucial to enhance productivity in service sectors
beyond tourism, such as restaurants and hospitals. This effort
should extend to constructing universities that appeal to young
people, like Ritsumeikan Asia Pacific University in Oita Prefecture
and Kochi University of Technology in Kochi Prefecture.
Creating enticing employment prospects in the countryside will

give youth the financial means to raise children. Life away from theurban rush will also give them more personal time. These factors
should encourage young people, particularly those living in Tokyo, tomigrate to rural regions, potentially leading to a rise in birth rates.
It has been noted that lower birth rates tend to correspond withhigher population densities, where it is also typically more expensive
to raise children. Thus, if more young adults choose to settle in lesspopulated regions, it could lead to an increase in fertility rates.
The population decline in rural areas not only reduces resident tax
revenues, but it could also trigger a drop in property tax revenue
through falling land prices, which are affected by both the decreasing
working age population and long-term diminished expectations. Withsocial security costs expected to surge, alleviating the strain on local
finances becomes crucial. It is therefore extremely important tocreate attractive employment opportunities in these regions.
As the trend of retiring to rural areas grows and remote work
becomes more popular, it is likely that an increasing number ofpeople will be living in two locations. This raises the possibility of amismatch between where residents receive government services andwhere they pay taxes. It is therefore essential to develop a tax systemthat supports such a dual-region living arrangement to fortify local
finances.
c) Enhancing remote learning and work

Expanding remote learning and integrating EdTech (Educational
Technology, a system that uses technology to support education)
more efficiently will provide people in rural communities, regardlessof their income levels, access to top-tier knowledge and hone theirskills. This is expected to boost productivity and, as a result,increase earnings. Teachers can then offer individual guidance inperson only on sections that students find difficult to understand justfrom online lessons.
EdTech allows each student to learn at his or her own pace andlevel and creates personalized education accessible from anywhere,anytime, according to the individual’s interests and proficiency. By
harnessing EdTech, we can cut the cost of meeting various
educational needs and ease the burden of on-site teachers.
For example, as pilot programs for proof of concept, we could
initially consider programming, where there is a severe shortage of
specialized teachers, and Japanese language lessons for children of
foreign descent who experience considerable regional discrepancies
in the accessibility and quality of language education. Yet anotherbenefit is that introducing individualized instruction through remotelearning and EdTech could prevent the downsizing of traditional
educational institutes in rural areas.
Incidentally, to avert a feared escalation in educational inequalities
in the era of widespread remote learning, it is critical to quickly tackle

the digital divide (information disparity) among educators. Thissituation came to light at the time of the Covid outbreak.
During this pandemic, touch screens were given to all children in
Japan. This meant that no matter where in Japan the children lived,
they had access to education that enhanced their motivation to learn
through remote means. It is believed that when taught by the best
instructors in their fields, the lessons are easier to understand, andstudents’ comprehension increases accordingly. If students canaccess these videos on demand any time, there will be no need toattend cram schools. The hope is that this will eliminate the impact
of income disparities on education.
If remote work, which expanded during the Covid-19 pandemic,
becomes more entrenched, people will have more options for whereto live, commuting times will be cut, leisure time expanded, and agreater variety of lifestyles possible. Single people will have more
opportunities to meet others, and married people more time athome. These changes, it is hoped, will result in a higher birth rate.
Long commuting times were one of the major barriers to
employment and full-time work for working parents. Remote work
could make better work-life balance possible. Relocating away fromcity centers can help individuals avoid soaring housing costs andencounter shorter waiting lists for childcare and afterschool services.
The pandemic made remote work possible for many jobs. In
traditional Japanese work culture, there was a perception that being
seen at the office was equivalent to being productive. But if we
promote remote work and switch to a system that measures eachindividual’s actual productivity rather than time put in at the office,people could move to rural areas. They could commute only a few
times a month to their workplaces in the city. This cultural shift could
act as the catalyst for enhancing the skills of the workforce in rural
regions.
During the pandemic, it became apparent that, even doing remote
work, women bore a larger share of domestic duties and child care.
It is vital that we move away from the male approach to work
centering around the number of hours spent. The focus should
instead be on performance. Also critical is proper education tomodernize outdated gender norms.
d) Policies for reducing educational disparities

Public schooling alone cannot ensure that students master basic
academic skills. Currently, higher-income families spend three times
as much on education compared to lower-earning ones, causing an
educational disparity. To tackle this issue, one idea is to give families“education vouchers”. These are coupons that can only be used for
educational expenses. Another point Japan must recognize is that
because its education has been too uniform, it has failed to unleash
individual talent through innovative education. Every effort should beJapan SPOTLIGHT • January / February 2024

9

made to shape creative thinkers who can tackle new technologies
like generative AI.
As stated earlier, remote education allows students, no matter
where in the country they live, to attend classes at no cost, and tolisten to lectures taught by the top instructors. Students are also free
to review any materials as many times as they want to clarify
concepts they personally struggle with.
Touchscreen rollout during the pandemic enabled nationwide
access for students. The advantage of remote education is that itprovides access to websites for different subjects that any student
can listen to any day of the year, regardless of income differences.
Another benefit of remote education is that students can revisit
challenging topics as often as needed.
e) Policies to change gender norms by correcting women’s
underrepresentation in politics

The scarcity of women in electoral races can lead to the neglect ofconcerns such as falling birth rates. Male politicians aren’t typicallyfaulted for overlooking issues like shrinking family sizes. However,there is an expectation for female politicians to have a stronger grasp
on matters related to family demographics.
Women make up half of the population, yet they account for only
about 15% of Japan’s parliament members. It is crucial that we
increase the percentage of women in politics. To do so, we canintroduce quota systems and use proportional representation. At thesame time, local politics should establish systems that encourage
the recruiting of female candidates, thus removing psychologicalbarriers to women becoming politicians. These should reform
systems that keep birth rates stalled, and in particular change gendernorms.

(2) Policies to increase the workforce
Innovations centered around digitization should enable greaterlabor productivity. This is critical for support of all willing workers,
including women and the elderly, so that they can achieve theirpotential.
The fact is that some seniors feel pressured because the age at
which they can draw a pension has been raised. Women, for theirpart, feel that they are forced to work while juggling the triple burdenof child care, housework, and employment. To relieve suchindividuals from their pressures, allow them to fully realize theirpotential, and achieve fulfillment in work, the following measures
should be expanded:a) Policies to encourage the elderly to stay active for life

We should move towards eliminating mandatory retirement andseniority-based pay systems, shifting instead to a pay system based
10 Japan SPOTLIGHT • January / February 2024

on productivity. This would encourage older people to continue
working as long as possible. Since Japan’s pension payout duration
exceeds that of other countries by an average of five to 10 years,
raising the starting age could be considered. Incidentally, the US has
been working to eliminate age-based employment discrimination. It
is important to create workplaces that fully utilize the abilities ofolder workers. For instance, the tourism industry in Japan’s regional
cities has a high growth potential. They are expecting an increase in
inbound tourism, where we hope that the experience and knowledgeof retired managers from large corporations can be utilized.
b) Promoting women in the workforce

Changing the gender norms mentioned earlier will empower
women to participate more fully in society. There must be newstandards so that both men and women can balance work and childrearing. The “income wall” previously discussed must be also
reviewed in terms of promoting women’s participation in theworkforce.
The deep-rooted assumption in Japan is that the woman handles
housework, childrearing, and caregiving. This societal expectation
effectively limits job opportunities for women, who are unable to use
their skills and abilities fully. Fundamental changes are crucial in thissituation. In general, women who aim for managerial positions findthe prospect of overseas transfer a significant obstacle to theircorporate ambitions. While it’s common practice for a wife toaccompany her husband when he is transferred abroad, the reverse
situation is not met with a similar understanding. Instead, the wife
may be forced to resign or change jobs. Adopting more flexible work
practices where both spouses continue to work, the family chooses aplace to live together, and partners are able to adjust theirworkstyles, would make it easier for people to have and raisechildren. This could contribute to solving the issue of declining birthrates.
c) The active participation of foreign workers: introducing apoints-based system

The active participation of more foreign workers can compensate
for a shrinking population and lead to greater diversification of theworkforce. This diversity is the key to making Japan morecompetitive in the era of globalization.
The direct investment in Japan (Invest Japan) policy that theJapanese government has been implementing up to now sought tobring in more skilled workers from abroad by making it easier forinternational companies to set up branches, factories, sales offices,and research and development centers in Japan. Moreover, boosting
tourism was expected to raise Japan’s profile, potentially leading to asurge in international business activities within the country.

This raised a question, would adding foreign workers offset thedrop in population?
Foreign workers have a more significant presence now. Across allindustries, the number of workers from other countries rose from
1.17% in 2010 to 3% in 2020. The National Institute of Populationand Social Security Research forecasts that by 2070, foreigners will
make up 10.8%, or 8.8 million, of Japan’s total population. (Theestimated average is based on the net number of foreign workers
entering Japan from 2016 to 2019, with the assumption that thistrend will continue. Because of the impact of Covid-19, the year 2020
was excluded from the calculation.) This figure is relatively high incomparison to Germany’s data. According to Eurostat, from 2014 to
2019, Germany’s foreign-born residents comprised 16.2% of the
population, the largest share in Europe. It is important therefore tohave a system that accepts foreign workers and helps them integrate(Chart 3 & Table 1).
Some problems have been associated with the existing TechnicalIntern Training Program, which was created so that “foreigntechnical intern trainees in Japan could enter into an employment

CHART 3

Ratio of resident foreigners to total
population in major countries
Refer to JETRO HP General Overview: “The Reality and Significance of Accepting
Foreign Talent as Seen Through Data, March 2, 2019”.
Germany

France

(%)

Spain

14.0

UK

Japan

South Korea

US

12.2

12.0

9.5

10.0
8.0

9.3

7.1

6.9

6.0
4.0

2.3

2.0
0.0

1.9

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
(Year)

Note: No data for the year 2017 for France and South Korea.

Source: Created from (OECD) “International Migration Outlook 2018”

TABLE 1

Foreign population stock
Refer to the website of the Independent Administrative Institution of Labor Policies Research and Training Organization. Data Book: International Labor
Comparison 2022 (PDF) 2 Population Labor Force Population P. 089 Tables 2-14 Foreign Population (Stock)
2005

2010

2015

2016

2017

2018

2019

2020

Per 1,000, % (lower row, ratio to population)Japan
US
CanadaUK
Germany
France
Italy

1,974

2,185

2,122

2,232

2,383

2,562

2,731

2.933

1.6

1.7

1.7

1.7

1.9

2.0

2.2

—

19,85821,641

22,26322,426

22,415—22,519

—

6.7

7.0

6.9

7.0

—

—

—

—

—

—

—

2,405

—

—

—

—

—

—

—

6.6

—

—

—

—

2,857

4,524

5,592

5,951

6,137

5,991

6,227

—

4.7

7.2

8.6

9.0

9.3

9.0

—

—

6,717

6,695

8,153

9,108

10,03910,624

10,915

11,228

8.3

8.3

10.1

11.1

12.2

12.9

13.1

—

—

3,821

4,335

4,542

4,704

4,617

4,763

—

—

6.1

6.7

6.8

7.0

7.1

7.3

—

2,402

3,648

5,014

5,027

5,047

5,144

4,996

5,040

4.1

6.1

8.4

8.5

8.5

8.7

8.7

—

The Netherlands

699

735

847

901

972

1,041

1,111

1,192

4.3

4.4

5.0

5.3

5.7

6.1

6.5

—

Sweden

481

603

739

783

852

897

932

941

5.3

6.4

7.6

8.0

8.6

9.0

9.3

—

South Korea

491

921

1,092

1,143

1,162

1,172

1,951

2,025

1.1

2.0

2.3

2.3

2.3

2.3

2.4

—

Note: Persons with foreign nationality. Precise definitions vary by country (see OECD database for details).

Source: OECD International Migration Database (http://stats.oece.org/) (as of February 2022)

Japan SPOTLIGHT • January / February 2024

11

relationship with their trainers for the purpose of acquiring, utilizing,and mastering skills and knowledge that are difficult to obtain in theirhome countries.” But the unintended consequence was that the
program was at times used to fill jobs with low-waged foreign labor,
as well as create a dependency on that labor. It has also been linked
with human rights abuses and missing trainees. Therefore, thedecision was made to transition to a system focused on securing anddeveloping human resources. Under the new system, workers will beallowed to transfer to a different employer, where before they were,in principle, forbidden to do so. More jobs from different industries
would also be added to the program. The new rules and regulations
will be reviewed by the fall of 2023. We hope to have as flexible asystem as possible.
More than ever, Japanese companies are searching for foreign
experts with specialized skills and knowledge. A new system now
allows foreigners with a master’s degree and an annual income ofover 20 million yen to acquire the residence status of Highly Skilled
Professionals (Type 2). They can acquire this after just one year ofstay, with no renewal requirements. Thus, Japan is transitioning
from a country that merely accepts “foreigners” to more actively andstrategically attracting them. We need to push this agenda further.
It is important to consider adopting a “points-based system”
similar to what the United Kingdom and other countries use. Because
the UK system has only been introduced recently, we need to see
how it unfolds. But it seems to be well-suited for giving priority tohighly skilled foreign talent. Under the system, points would be
assigned and calculated for skill level, Japanese proficiency, andpossession of specialized knowledge. Workers with high scores areprioritized. We would like to make this our working group’s basic
recommendation for promoting the introduction of foreign workers.
Furthermore, we need to recognize that Japan’s employment
environment and acceptance of workers’ families do not compare
favorably to other OECD countries.
These are the reasons why Japan is a challenging place for skilled
foreign professionals to settle: (1) career advancement is difficult;(2) Japan has certain unique employment practices, such as themass hiring of new graduates; (3) integration and assimilation into
the workplace is difficult; (4) schools are not multicultural; (5) there
is no work-life balance; (6) salary level may be inadequate; (7) needfor high proficiency in Japanese.
There is an urgent need to correct these issues and build an
economic and social system that does not discriminate against
foreigners.
To make settling into Japan easier for foreign nationals, it isimportant to create and promote policies that: (1) support the family(unite the family and educate children) (2) improve the work
environment (ban discrimination, ensure transparency in career
12 Japan SPOTLIGHT • January / February 2024

development, and offer Japanese language lessons).
Whether the foreign talent is unskilled or highly skilled, it isimportant to build an adequate infrastructure for supporting them.
First, the government should set up a central hub to oversee andfacilitate the integration and coordination of data-related activities.
This should involve the use of DX (digital transformation) for
immigration and residency management tasks. For example, entry
and exit procedures at immigration can be made digital, andresidency application procedures can be streamlined through further
digitization.
Furthermore, we must work towards mid-to-long-term social
integration. To establish improved living conditions, we will: (1) use
digital technology to provide multilingual support at government
offices and hospitals, including implementation of measures topromote the spread of “Easy Japanese”; (2) set up systems forJapanese language schools and teachers; (3) streamline procedures
related to children’s education and for caregiving, insurance, andpensions; (4) allow people who have lived in Japan for five years tobe eligible for permanent residency; (5) accelerate initiatives of theaccepting companies, such as performing due diligence (DD) withrespect to human rights, ensuring that management respects diverse
values.
For foreign workers, the first generation can continue to live inJapan based on their individual skills. But if we look at examples
from Europe (such as France and Germany), considerable monetaryinvestment will have to be spent in order to improve education forthe second generation. When parents speak imperfect Japanese, it isharder for their children to learn kanji and Japanese grammar in theirearly years. And once they start elementary school, they have a hardtime keeping up with the curriculum. To make it easier for foreign
workers to integrate into society, we must continue to support theirchildren’s education through public funding. In addition, we need tohave community-based activities to make sure that foreign children
are not bullied at school. The recent unrest in France and theNetherlands, along with the UK’s Brexit decision, underscores thecomplexities of assimilating foreign workers into the societal fabric.
Stable, well-thought-out measures are essential for successful
integration.
Of concern is the effect of yen depreciation. Foreign workers findthat their income is reduced when converted to dollars. There arereports that the number of applicants from overseas, such as nurses,
has drastically decreased. It has become necessary to consider
measures to ensure that excellent talent from abroad continues to
see Japan as an attractive choice for employment.
d) People-to-people exchange

We must continue welcoming international students and technicalinterns. The goal is to allow these individuals to learn about Japanand acquire skills that they can take back to their home countries tosupport economic development. To achieve this, it is important tomake sure that they have a fruitful stay in Japan. We need to
implement policies that encourage as many people as possible in
Asia and all around the world to entertain a favorable view of Japan.

(3) Minimizing Japan’s security risk in Asia from population
decline and economic contraction
To reduce the risk to Japan’s security in Asia, two main strategies
are considered.
a) Utilizing high technology

We may use unmanned systems, including robots and artificial
intelligence (AI), to maintain military strength despite having fewer
troops. Or we may place Self-Defense Forces personnel in morelabor-saving positions. However, new types of responses are needed
when bringing in such high-tech solutions. Technologies such as AI,
cyber warfare, and swarms (groups of drones used in combat) arechanging the nature of regional security measures.
Moreover, mastery of these new technologies will require new andlonger periods of training. New personnel capable of designing,assembling, and using such complex technologies will be necessary.
As the population grows older and the demand for new types of
weapons systems increases, countries that are already struggling to
pay for their defense because of a decreasing population will have toconsider taking on even more financial responsibility to come up
with the money needed for these costs.
Moreover, when private companies become involved in developing
new technologies with allies like the US, implementing thoroughsecurity clearances will be vital, considering the potential conversion
of such technologies for military use.
b) New regional economic security cooperation

We must deepen relationships with nearby nations like South
Korea and the Philippines. At the same time, we must fortify ourbond with the aforementioned highly populated Asian countries, aswell as reinforce mini-lateral cooperation, like the Quadrilateral
Strategic Dialogue involving Japan, the US, Australia, and India.
Populous countries like India and Indonesia are not threatened byshrinking demographics. Their military budgets have room to grow.
Security partnerships with such nations are expected to play a bigger
role.

(4) Population trends in Africa and other areas outside of Asia;changes in scale in the economies of the US and China
Looking ahead, it is vital to consider security with international

relationships outside of Asia in mind. For example, in the context of
the Indo-Pacific initiative, which is a vital pillar of security in the
Asia-Pacific region, it will become important to collaborate with the
African region, where population growth is anticipated. Moreover,because of China’s declining birth rates and aging population, it
seems increasingly unlikely that China will overtake the US in
economic size. Even if that were to somehow occur, the situation willprobably reverse itself again. The US shares Japan’s democraticvalues and is likely to remain a long-term security partner.

3. Policies that Should Be Referenced in
Countermeasures for Declining Birth Rate & Aging
Population in Other Countries
Although there are differences in degree, other developed
countries, like Japan, face an aging society and are likely at risk of
future population decline. We will refer to and introduce policies
from these countries (Table 2).

(1) Francea) Policies regarding fertility rate

In 2020, France’s fertility rate was 1.82, which is considerably
higher than Japan’s 1.35. The following five policies can be cited asreasons:
1) A stable, long-term birth promotion policy – family allowances(benefits) are linked to the cost of living, not GDP.
2) Tax policy rules (N-fraction N-power method)First add up the total income of the family. Then divide it by thecomputed family coefficient (where adults count as one, the first twochildren as 0.5 each, and the third and subsequent children as one to
get the total) to determine the tax amount per coefficient of 1. With
this method of calculating the tax amount by applying a family
coefficient, the more children in a family, the less tax they have topay.
Numerical example: the husband earns 30,000 euros; the wife,
20,000 euros, for a combined family income of 50,000 euros.
For one child, the family coefficient is 2.5. When you divide 50,000
euros by 2.5, the result is 20,000 euros.
For three children, the family coefficient is 4 (1+1+0.5+0.5+1=4.)
Dividing 50,000 euros by 4 gives you 12,500 euros.
Before adjusting for family coefficient, the tax rates are:
0% for income up to 11,000 euros
11% for income from 11,000 to 27,000 euros
30% for income from 27,000 to 79,000 euros
For one child, with a family coefficient of 2.5, income up to 27,500
euros (11,000 x 2.5 = 27,500) will be taxed at 0%. The remaining
income of 50,000 – 27,500 = 22,500 euros will be taxed at 11%.
Japan SPOTLIGHT • January / February 2024

13

TABLE 2

Overview of policies from various countries addressing low birthrates &aging population that should be referenced
Reforms regarding birth rate
Childcare assistance

Education cost
support

Housing policies

Addressing theaging population

Foreign labor policies

FranceFamily allowancepayments indexed to costof living, N-power tax rules.
Inclusive family policies
supporting all types offamilies (children born outof wedlock, low income,single parent, etc.)

Free public
education
includinguniversity

Priority housing
benefits forfamilies withchildren

Prohibition of age
discrimination

Policies such as birth promotion policies and othersocial policies are applied equally to foreign workers.
The education provided to the children of foreign
workers is more substantial than that for the general
population. For the children of highly educatedforeign talent in particular, there have been efforts toprioritize their admission to elite educational facilities.
As a result, there has been some backlash from thegeneral citizenry.

UK

Paid parental leave forboth parents until child is
6 years old. Allow flexible
work arrangements. Fullcoverage of childbirthcosts, 80% of childcare
expenses tax deductible

Free public
education untilage 16

Generous housing
cost support
for families withchildren

Prohibition of age
discrimination

The UK: Brexit ended the free movement ofBritons within the EU. A “points-based system” wasintroduced to issue a new “Skilled Worker Visa” topeople of all nationalities. Priority is given to higherskilled workers, while lower-skilled workers are notissued visas unless they reach a certain number ofpoints. In principle, 50% of occupations are open
to foreign workers. The majority welcome foreign
workers as supporting economic recovery.

SwedenStrong paid leave support
for both parents, generous
childcare subsidies

Free public
education
includinguniversity

Housing financesystem that favors
married couples

Mandatory
retirement age of
67 years old

Previously, the policy on foreign workers was close
to free flow, but recently, due to the rise of rightwing forces, there has been a notable movement to
reduce the numbers of refugees and foreign workers.
As a social integration policy, significant weight isgiven to language education. However, the presenceof many foreign workers in impoverished areas tends
to exacerbate disparities and increase social unrest.
Therefore, an inclusive economic policy is required.

Singapore

Increased Baby Bonus
cash gifts; expanded
government-paid paternity
leaveChildcareand parenting
subsidies can beused for educationand medical costs

Support forchildcare andparentingassistance funds
that can be used
for educationaland medical
expenses

Retirement at age
63 but can work
until 68 if able to

The provision of long-term stay visas is limited(for those who have a spouse or parent who isa Singaporean citizen or permanent resident,
about 10% of the total visas granted). There arestrengthened measures to acquire highly skilled
foreign workers. It is characteristic that about
40% of the labor population are foreign, of whichapproximately one-quarter are permanent visa
holders.

Source: Prepared by the Working Group for Japan’s Population Challenges Secretariat

Therefore, income tax due will be: 0 x 27,500 + 0.11 x 22,500 =
2,475 euros.
In contrast, for three children, the family coefficient is 4.
Therefore, income up to 44,000 euros (11,000 x 4 = 44,000) will betaxed at 0%. The remaining 6,000 euros (50,000 – 44,000 = 6,000)
will be taxed at 11%. Therefore, income tax due will be: 0 x 44,000 +0.11 x 6,000 = 660 euros.
3) Education policy – Provide free public education, including at theuniversity level.
4) Housing policy – Policies take family size into account. Includes
public housing provided preferentially to families with children.
5) Inclusive family policy implementation (achieving equality ofopportunity and inclusive social security policies that cover poor
14 Japan SPOTLIGHT • January / February 2024

families, single-parent families, children born out of wedlock, etc. A
social security system that does not discriminate against children
born inside or outside of legal marriage). Measures include special
benefits to single-parent households.
The policies above give everyone the choice to have children under
different conditions. In this way, anyone in a variety of situations –for example, after completing certain job experiences, and whether
they are married or not – can have the option to have children. Allsuch policies will play a role in a higher birth rate.
b) Measures against age discrimination

The EU’s General Employment Equality Directive prohibits direct
and indirect discrimination based on age. In France, a provision inthe Labor Code prohibits discriminatory treatment based on age.
c) Policy regarding foreign workers

Since 2000, the number of foreign workers in France has
increased by 36%. Integrating them into society presents achallenge.
1. Application of social policies to promote fertility
Among adults between the ages of 18 and 60, 31% have at least
one grandparent born abroad, which makes them eligible for social
policy benefits including housing allowances, back-to-school
funding, and subsidies for expenses such as babysitting. Whether or
not the worker is a foreign worker is irrelevant to the application.
2. Education
Educational policies are implemented to save children from failingacademically, regardless of whether they are the children of foreign
workers or French citizens. The reality is that the children of foreign
workers are better educated than those of the average French citizen.
There is also a system in place that gives highly educated foreign
professionals preferential admission to special higher education
facilities. But this can result in animosity and backlash from thegeneral public in France.

(2) United Kingdom

Brexit, which signaled opposition to the free movement of workers
within the EU. After Brexit, Britons could not travel quite as freely as
before within the EU states.
The UK introduced a “points system”, started giving out “Skilled
Laborer Visa” (work visa) to people of all nationalities, and lowered
the minimum yearly income required for skilled foreign workers from30,000 pounds to 25,600 pounds. The skill requirements have been
lowered from a university graduate level to a high school graduatelevel. The cap on the number of skilled workers that can be accepted
has also been lifted. Also abolished was the so-called “resident labormarket test” which prevented foreign workers from being admitted ifthey were thought to hurt the domestic labor market. Workers needmore than 70 points based on criteria such as English proficiency
and the appropriate skill level for the proposed job. However, therequirement is lower for a doctoral degree holder. Workers withhigher skills can get visas without a job offer, but for lower-skilledworkers, visas will not be issued unless the above points are met. In
principle, therefore, approximately 50% of jobs have been opened up
to foreign workers.
This has impacted public opinion; 10 years ago the issue of
foreign workers in the UK was a source of economic stress for most
Britons. Now 59% of people believe that foreign labor and skills areneeded to help the economy recover.

a) Birth rate policy

The birth rate was 1.6 in 2020, down from 1.93 in 2010.
The ratio of seniors to the working-age population was just under
30% in 2020 and is projected to be about 50% in 2070. (In Japan,
the numbers are just below 50% and around 75% respectively. Bothare estimates by the United Nations.)
Thirteen weeks of childcare leave are guaranteed for employees
until their child turns one year old. Mothers are entitled to ninemonths of leave benefits and up to 12 months of maternity leave.
Fathers can take 26 weeks of paid leave if they apply within eightweeks of the birth of their child. Parents with children under the ageof six have the right to request flexible working arrangements fromtheir employers. Regarding maternity and childcare services, there is
full financial support for childbirth costs and, starting with the firstchild, child allowances are provided until the age of 16 without any
income restrictions. 80% of childcare costs, such as the use of
daycare centers, are tax deductible. Public-school tuition and related
fees are free for children up to the age of 16.
These policies make it easier for both men and women to raisechildren, and additionally allow men to participate in housework at a
relatively high level.
b) Policy regarding foreign workers

The issue of foreign workers was a significant issue just before(3) Swedena) Birth rate policy

The current birth rate is around 1.5, which has been higher thanJapan’s for the past 40 years. This is partly due to higher birth rates
among foreign workers. In addition, the relative youthfulness offoreign workers has helped forestall aging of the population. All
children under 18 receive a universal allowance, a generous incomecompensation during parental leave (80% of salary paid for oneyear), and substantial childcare subsidies ($150 per month per
child). The government strongly enforces gender equality norms.
Financial measures are also in place to help couples secure housing.
b) Foreign worker policy

Sweden has long been concerned about labor shortages and thecountry’s future as the population trends downwards. It recognized
the need for a policy that allows for the acceptance of foreign
workers and for utilizing refugees as a strategic labor force.
It is especially noteworthy that in 2008 the government stopped its
labor market testing when bringing in non-resident workers. (Acheck was required to see if there actually was a domestic labor
shortage before accepting applicants from abroad.) However, farright parties who advocated against foreign labor grew more
influential. As a result, refugee acceptance became more restrictive
Japan SPOTLIGHT • January / February 202415

with bans on permanent residency and strict visa requirements.
Meanwhile, to promote social integration, non-EU foreign workers
are required to receive union-approved wages. There are no
limitations on the kinds of jobs that can be held. There areregulations to prevent the cost of housing from being prohibitive for
immigrant employees.
Meanwhile, as part of a policy for integrating foreign workers,
Sweden emphasizes language education, as well as adult education
for those who have not received schooling. Given that a large
number of them live outside major urban areas, support for finding
housing is stressed. Many live in poverty. Female foreign workers
with children are less likely to be employed compared to Swedish
women. Stark income disparities exist in large urban areas, while
poorer areas are turning into a breeding ground for crime. These andother significant challenges remain. The smooth integration offoreign workers into society is a major task.

(4) Singaporea) Birth rate policy

Singapore’s birth rate was 1.03 in 2022, lower than Japan’s 1.3.
Attention has been drawn to the negative effects of low birth rates
since the mid-1980s. A variety of incentives were introduced tocounter the declining birth rates, but the rates continued to fall
despite a temporary increase. Marriage and Childcare Support
packages were introduced in 2004, 2008, and 2013. They granted
significant subsidies for married couples to purchase houses,
substantial subsidies for families with children, extension of paternity
leave, assistance for childcare, matchmaking support programs, andtax deductions for households with children.
By 2030, one in four people is projected to be elderly (an aging
rate of 25%, the proportion of the population aged 65 and older.)
Although the official retirement age is 63, to promote theemployment of elderly people, employers are mandated to offer
re-employment opportunities up to the age of 68. Part-time
re-employment subsidies will be extended until 2025.
b) Foreign worker policy

Approximately 40% of the labor force consists of foreigners(combining just under 10% who are permanent residents and justover 30% who are non-residents). Policies are strengthened to
attract highly skilled foreign workers. The Expert Pass is issued to
non-residents who earn a fixed monthly salary of 30,000 Singapore
dollars (1 SGD = 100 yen) or more, which places them in the top 5%
among Employment Pass holders. The pass is valid for five years
and allows holders to work for multiple companies simultaneously.

16 Japan SPOTLIGHT • January / February 2024

4. Conclusion
Japan’s declining birth rates and an aging population are longterm trends that highlight the need to correct underlying structuralproblems. It is essential to correct this structure over the mediumto-long term by setting population targets. “Maintaining a populationof around 100 million people in 50 years (2060)” was set out in the
Basic Policies for Economic and Fiscal Management and Reform (theGrand Design), a target set by the Abe administration in June 2014.
These are suitable goals to prevent negative economic growth due topopulation decline, avoid further devastation of regional economies,
maintain the social security system, and ensure security in the faceof rising geopolitical risks. Social and economic systems such as
lifetime employment and seniority systems, previously predicated on
population growth and a large number of young people, must
fundamentally change to accommodate the shrinking and aging
population.
To halt the trend of population decline, it is critical to both improvethe birth rate and expand the intake of foreign workers. From a
medium-to-long term perspective, we must implement policies thatprovide incentives for having children and allow people to appreciate
the benefits of accepting a global workforce, while also encouraging
foreign workers to see the benefits of immigrating to Japan andworking here.
The current Kishida administration’s extraordinary measuresagainst declining birth rates are based on the medium-to-long term
perspective: 1. Increase the income of the younger generation; 2.
Change the structure and consciousness of society as a whole tosupport childrearing with the participation of companies, men, andthe community; and 3. provide seamless support regardless ofparents’ employment or family situation, aligned with life stages.
While this is the right direction to take, Japan is still only halfway toachieving these goals, compared to other countries.
Furthermore, Japan should promote 1. Structural income growththrough a more flexible labor market; 2. Creation of attractive job
opportunities in regional areas through the stimulation of tourism
and other industries; and 3. Improvements to work-life balancethrough enhanced remote education and work. Japan should also
consider implementing other measures such as tax rules (N-fraction
N-Power) adopted by France, policy support that includes children
born out of wedlock, and expansion of free public education,
including university studies.
According to the 2021 version of the White Paper on Measures to
Cope with the Declining Birth Rate, Japan’s child-related budget isrelatively low at 1.65% of GNP, compared to around 3% for familyrelated expenditures in the UK and France. There is room forsignificant expansion. It is important to form a national consensus

TABLE 3

Policies not covered in Prime Minister Fumio Kishida’s unprecedented
countermeasures for the declining birth rate & foreign talent recruitment
strategies①

Spread of remote education & remote work
Spreading remote education means that whether people live in rural areas or belong to low-income groups, they can access the best knowledge toimprove their skills. This raises productivity and income so that people can better afford having children. Additionally, more options for remote work
give people more choice over where they live. Saving commuting times and having more leisure time means people can afford to have children. For
women with children commuting times had been an obstacle to working or working full-time, but remote work allows them to avoid expensive big
cities and work in areas with shorter daycare waiting lists.

②

Labor market reforms
Making the labor market more flexible creates better matches between workers and jobs, consequently improving worker productivity and raising
wages. This gives people the economic means to have children.

③

Promoting industries like tourism to create attractive employment opportunities in rural areas
Japan’s rural areas have abundant untapped tourism resources. Developing the tourism industry could create many jobs for youths and accelerate
young people settling in or moving to rural areas. An affluent life in the countryside with few time constraints would make child rearing possible.

④

Raising children born out of wedlock
In France, 61% of total births are to unmarried parents, while in Japan the rate is just 2.4% (both 2020). France offers the same subsidies from thegovernment to assist in raising children, whether the parents are married or not.

⑤

N-fraction N-power tax rules
France’s tax rules sum up all family income, divide that by a family coefficient (1 for each adult, 0.5 for the first two children, 1 for each childthereafter) to determine the tax amount per coefficient of 1, then multiply by the family coefficient for total tax amount owed. More children means
less taxes owed overall.

⑥

Accelerate the acceptance of highly skilled foreign workers• Singapore’s Specialist Pass System• The UK’s “points-based system”• France’s social integration education for foreign workers’ children

Source: Prepared by the Working Group for Japan’s Population Challenges Secretariat

on funding sources, recognizing that Japan’s consumption tax isrelatively low.
The expansion of foreign labor, which is another measure to stop
population reduction, involves transitioning the current TechnicalIntern Training Program into a new system driven by the need to“secure and nurture talent”. Japan should commit to a full-scale
expansion of highly skilled international talent and to support this,improve the environment for welcoming their families. They shouldhave ready access to Japanese language lessons and quality
education for their children. Additionally, job discrimination should
be prohibited in the workplace. Japanese society as a whole should
create an environment that is more open to foreign workers (Table
3).
According to the National Institute of Population and Social
Security Research, the birth rate for maintaining the current
population should be 2.07. This is a much higher rate than 1.26,
which was the figure the Ministry of Health, Labor and Welfare
announced on June 2, 2023. Birth rates under 1.50 are considered“ultra-low”, a situation for concern. We might assume that thereason for the current low birth rate is that fewer people were getting
married during the Covid-19 crisis. But even if the pandemic impact
eases, and the current measures to raise the birth rate gradually
begin to work, the Research Institute still predicts a low birth rate of
1.64. According to its calculation, by 2070 there will be just under
100 million people – 95.49 million, of which 8.8 million will be fromother countries. Therefore, to ensure a long-term population of 100
million, it is necessary to implement all policies, including those
aimed at foreign workers. Raising national awareness of the issue
through large-scale social mobilization will be an important step
towards Japan becoming a “child-friendly society”.
Article translated from the original Japanese by Cherryl Chow.
The Japan Economic Foundation (JEF) initiated the Working Group for Japan’s
Population Challenges with prominent Japanese experts in January 2023 andpublished policy recommentations in Japanese in November 2023.

Japan SPOTLIGHT • January / February 2024

17

COVER STORY • 1

ORoundtable with Tomoko Okuda, David Atkinson, Mitsuaki Hoshino & Masakazu Toyoda

pportunities & Challenges
for Japan as a Tourism
Powerhouse

By Japan SPOTLIGHT

For the Japan SPOTLIGHT July/August 2023 issue highlighting tourism’s recovery from the pandemiccrisis, we held the following roundtable showcasing Japan as a tourism powerhouse.
Participants: Tomoko Okuda, Proprietor of Kyoto Cuisine Ryokan (Inn) Shiraume
David Atkinson, President of Konishi Decorative Arts and Crafts Co., Ltd. and Special
Advisor to the Japan National Tourism Organization (JNTO)
Mitsuaki Hoshino, Director of International Tourism Department of the Japan Tourism Agency
Moderated by Masakazu Toyoda, Chairman & CEO, Japan Economic Foundation (JEF).
(Online Roundtable on May 29, 2023)
Participants

Tomoko Okuda

David Atkinson

Introduction
Toyoda: At the beginning of this roundtable discussion, I would liketo speak about today’s themes. As the Japanese economy is facedwith the challenge of depopulation, the idea has emerged that
tourism could be a driving force of growth to compensate for the
possible economic decline due to depopulation, and especially so inthe process of recovery from the pandemic disaster.
Japan has rich natural tourism resources, such as landscapes withmountains, rivers, and coastal areas, as well as a variety of plants
and animals. The climate is generally mild and the four seasons
regular and predictable. Japan also has a distinctive culture, andJapanese cuisine was registered as a World Intangible Cultural
Heritage by UNESCO in 2013. But in spite of such great potential for
tourism, the number of foreign tourists visiting Japan has notreached even the top 10 among nations.
4 Japan SPOTLIGHT • July / August 2023

Mitsuaki Hoshino

Masakazu Toyoda

Today, we have invited three experts on tourism to discuss threedifferent questions. What are the most attractive aspects of Japan for
visitors from abroad? Can Japan’s tourism industry beinternationally competitive and a key industry for supporting theJapanese economy? And how can we attract many more visitors tofill the gap between the reputation and the reality of foreign tourism
in Japan?
Our three experts are, first, Ms. Tomoko Okuda, proprietor of
Cuisine Ryokan Shiraume, number one in Kyoto’s hotel rankings,
and also president of Gion Shinbashi Townscape Community
Planning Council; second, Mr. David Atkinson, who has inspired
Japanese people by saying that Japan should be number one in
inbound tourism revenue as it enjoys the highest reputation as a
tourist destination in his numerous books on it; and third, Mr.
Mitsuaki Hoshino, director of the International Tourism Departmentof the Japan Tourism Agency, responsible for the Japanese
https://www.jef.or.jp/journal/

government’s tourism promotion strategy, and the Tourism Nation
Promotion Basic Plan that he has been working on has just been
approved by the Cabinet at the end of March 2023.
We would like to start the discussion with the question of what ismost attractive to foreign tourists about Japan. Ms. Okuda, you areworking in Kyoto, considered to be the most attractive tourist spot inJapan. Could you tell us your thoughts about this question? Even in
Kyoto, tourist numbers have been falling due to the pandemic thesepast couple of years up until 2022. What was the situation in Kyoto
and are tourists returning now?

Japan’s Attraction for Tourists from Abroad
Okuda: Japan has many points of attraction for tourists, such as
natural scenery, cultural customs and artifacts, and historical sites.
Although Japan is a small country, it has an unusual diversity ofcultures within it, from the north to the south – from Hokkaido to
Okinawa. But the big issue now is that we cannot take full advantageof these attractions for tourism promotion.
In Kyoto for example, there are many wonderful hotels with luxury
rooms and many public spaces, but I think one of the issues is thequality of service of the staff.
Gion Shinbashi Townscape Community Planning Council wasstarted in 2015. We established this because the uniqueness of
Kyoto was gradually being lost and it looked all too similar to any
other tourist spot. In this area, as a landscape preservation district,
we have many rules to be rigorously observed. But as the young
generation succeeds in business in this district, new businesses try
to attract tourists only to their own business regardless of theharmony of the town community.
We Kyoto people respect the custom of working hard together toenhance the community as a whole and attract tourists to Kyoto. But
many young entrepreneurs today do not hesitate to break thiscustom and the rules, such as the color of a shop curtain or the
shape of the architecture. If this situation continues, we cannot
preserve our unique culture.
I believe that our culture must be passed on to the future
generations. Of course, Gion today is different from what it was 200
years ago, and I think that good ideas, though new to us, can well be
adopted. But we founded this Council for the preservation of our own
culture in this district and made it a rule to have prior consultations
with new shops and discuss with them the nature of their business,
their management of it, and their appearance – and thus without ourpermission, they cannot apply for the Kyoto city government’s
official permission to open a new business.
It is true that due to the pandemic there have been very few
tourists in Gion these past two or three years. It was, however,shocking for me that all the tourists that did visit us during the

pandemic, mostly Japanese, were saying the same thing – namelythat Kyoto had lost its unique charm before the pandemic, but only
now with Covid-19 was the ancient Kyoto coming back.
Bearing these views in mind, we must think about how to develop
tourism in Kyoto while preserving its unique traditional townscape.
This is our future challenge.
Tourists from abroad have recently been returning too. I waswalking around Hanamikoji and Shijou-Dori yesterday and found that
99% of those walking in these areas were from abroad and I could
not hear Japanese at all. The serious problem is that they were justwalking and not spending money. This presents a very toughsituation for the shops on the streets.
Toyoda: What do you think are the acknowledged attractions ofJapan, Mr. Atkinson?
Atkinson: I think it is wrong to think about what we think of as
Japan’s tourist attractions, though there seem to be many people
who think like that. The key question is what travelers are looking forwhen they visit Japan. It is not a question just of which heritage sites
or beautiful scenery you can list; the point is the diversity of
attractions.
For example, it is not true that so many tourists visit Kyoto justbecause of its many temples and shrines. Kyoto offers a richdiversity, such as Gion, cuisine, hiking, shopping venues, allconcentrated in a relatively small area. Tourists don’t come only forhistory and culture. So it does not make sense at all to try to define alimited list of the attractions of Japan as a possible tourist
destination for all 8 billion people in the world. You cannot enjoy
looking at temples and shrines all day and night over a two-weekstay. There are also many tourists who want to go to the beach or
the mountains or walk in a national park. Japan has many beautiful
national parks and it loses out on a much larger market if it does not
fully utilize these unique resources.
Look at Kamakura, for example. It is certainly true that without its
cultural properties, Kamakura would not attract as many tourists as it
does, but it cannot attract as many people as it does only with its
cultural properties. The Enoshima Electric Railway, the beach, good
food, and many other factors all contribute to the number of tourists
visiting. History and culture are not the only or even main decisive
factors in the success of a tourist spot, though they are certainly
important.
Thus how many world-beating tourist attractions a country has is
not the real question. In fact, there are not that many world-beating
tourist attractions in the world. It is often said in Japan that moretourists visit a country with the most world-beating tourist
attractions, but it is not true that we travel to any given country only
for that reason. It is human nature to choose a new place to visit. In
Japan SPOTLIGHT • July / August 2023

5

this regard, the key questions in a tourism strategy are whether anation has tourism assets that people want to visit at least once intheir lifetime, whether those resources have been invested inproperly to be attractive to tourists, and whether the infrastructure
has been put in place to earn the revenues to make tourism
sustainable.
It is fundamental to a tourism strategy to invest in and create such
resources and venues. The Japanese idea that there is no need toinvest in tourism development is extremely irresponsible. Tourism
assets rarely exist; they are created by investment. Without
investment in tourism promotion, nowhere can become a good
tourist spot. In my opinion, investment to make such venues
attractive is the key to a successful tourism strategy.
Toyoda: Mr. Hoshino, what would you say are the mains appeals ofJapan’s tourist resources, as a member of the Japanese government
section in charge of tourism promotion? Due to the pandemic,
inbound tourism has largely decreased these last couple of years.
Could you also tell us whether it is now rebounding to its former
levels?
Hoshino: Inbound tourism is certainly returning now. According to aquestionnaire survey among tourists worldwide, Japan is fortunately
referred to as “the country which they definitely want to visit after the
pandemic”. There could be an argument about which aspects ofJapan they value, such as food, culture, or seasonal elements, but I
imagine people value Japan by taking a comprehensive views ofthese factors.
Before the pandemic, in 2019, foreign tourists visiting Japan
totaled around 32 million, the highest level ever. But with the
pandemic’s impact, this declined to 4.12 million in 2020 when there
were still many foreign tourists until February, and then continued to
decline to 0.25 million in 2021. In accordance with the decrease ininfections, the Japanese government has been relaxing its bordermeasures against entrants into the nation, even after June 2022
when the ban on group tours was lifted. More importantly, since Oct.
11, 2022, it has lifted the ban on visits by individuals on condition
they have a vaccination certificate.
With these new policies in place, the number of foreign tourists
visiting Japan has been increasing steadily again.
In February 2023, there were around 1.5 million foreign tourists, inMarch around 1.8 million, and in April around 1.95 million. The
number for February indicates a recovery to 67% of the level prior to
the pandemic. China still maintains its ban on group tourism, but ifthat is disregarded the level would be back to 82% of the level prior
to the pandemic. As you know, the Japanese government lifted allborder measures at the end of April, and on May 8, Covid-19 wasconsidered to be at level 5 – the same level as influenza – from level
6 Japan SPOTLIGHT • July / August 2023

2 in terms of severity. Restrictions on people’s lives in Japan were
widely modified with these new policies, and so we expect many
more tourists from now on.

Tourism as an Industry
Toyoda: Let’s discuss tourism as an industry. What do you thinkneeds to be improved in the Japanese tourism sector in comparison
with other nations? Do we need more investment in the tourism
business, as Mr. Atkinson mentioned? He mentioned in his book that
we need to attract tourists from abroad who would not hesitate to
pay a high cost for tourism, in particular those coming from nations
far from Japan, such as in Europe. Failure to attract such high-classguests is an issue that needs to be solved. What is your advice, Mr.
Atkinson?
Atkinson: A destination has to find a way to earn sufficient revenue
to cover the inconvenience of having tourists visiting. Only when
there is sufficient revenue being generated does tourism become abusiness, and without those revenues, the number of tourists visiting
is simply an empty boast.
According to the United Nations World Tourism Organization, 70%
of tourism in a country on average comes from intra-regional
tourism. Thus it makes sense that most inbound tourists coming toJapan are from Asia. Likewise, in Europe, most of the tourists arefrom Europe; and the same in America. Intra-regional tourism is themainstay of tourism everywhere.
Initially, Japan’s tourism strategy was focused primarily on Asiaand the number of tourists coming from Asia rapidly increased. Once
Japan had reached critical mass from Asia, I suggested changing thestrategy from a mainly Asian-oriented one to attract tourists from allover the world.
My point was that long-haul tourists stay longer because of thehigher cost and longer travelling time. They not only stay longer but
also stay in more expensive hotels, because the higher investment
required to visit Japan attracts more affluent travelers.
Japanese tourists will tend to stay at hotels and inns mainly atweekends and during the major holiday seasons. However, on
weekdays their occupancy rate is relatively low. Tourism fromoverseas will help to raise occupancy rates over the year sinceholiday periods globally are different and especially because
overseas visitors will travel for a longer period than is true forJapanese tourists. I have also argued that Japan needs to attract
more wealthy tourists, but one of the challenges for the Japanese
tourism industry here is the lack of hotels to accommodate them. As
a rule, hotels and restaurants account for roughly half of tourism
revenue, so Japan cannot attract this market even if it can compete
on the basis of heritage or nature unless it invests more in its hotel

infrastructure. This is not just the right hotel buildings. More needs
to be invested in the right human resources, and that means higher
salaries which also creates an additional boost to the local economy.
Such investment in better hotels and more qualified humanresources has to come first, after which a destination can bepromoted. Spending a lot of money on promotion without suchinvestment is a waste of money. No matter how much a restaurantwith bad food may spend on promotion, customers may come once
but afterwards it would get bad reviews on SNS. In the Internet age,
if your product is not good, a lack of investment quickly results in
bad reviews on the Internet.
In order that foreign tourists from abroad can enjoy staying inJapan, good signage in English and other languages is a necessity.
Obviously, most people cannot understand Japanese on their first
visit to Japan. Museums and heritage sites need multi-language earphone guides and Wi-Fi needs to be widely available. With the rightinfrastructure investment, Japan can become a major tourist
destination, and its reputation will spread via the Internet. The sourceof any industry’s profitability is investment and the same is true forthe tourism industry. People working in the tourism industry need tounderstand this essential point.
Toyoda: A question to Mr. Hoshino. Tourism is considered as a pillarof Japan’s growth strategy in the Tourism Nation Promotion Basic
Plan. I am interested in this plan from three perspectives: raising ormaintaining growth against depopulation, the vitalization of local
economies, and the promotion of Japan’s soft power. Could you
briefly explain about these three perspectives? And could we also
have your views on what Mr. Atkinson has said about the need forinvestment in tourism facilities and in particular his view on longhaul visitors? How is the Japanese government trying to address thisissue?
Hoshino: We consider tourism an important pillar of our growthstrategy and thus it means effectively considering tourism as anindustry. At this moment, the Japanese population is around 126
million and annual consumption per person is around 1.3 million
yen. Hereafter, depopulation will progress and there will be only 100
million people around 2052, according to one estimate. So annual
consumption will decrease as well. Can this consumption decrease
be compensated for by an increase in consumption by inboundtourists?
According to the statistics in 2019, visiting foreign tourist
numbers were about 32 million and their consumption for travel was
4.8 trillion yen. So expenditure on travel per person by foreign
tourists is calculated to be around 158,000 yen. This means that withjust eight foreign tourists, the annual consumption per person in
Japan of 1.3 million yen will be compensated for.

For domestic tourists, this amount corresponds to 23 tourists
staying in hotels and 75 making day trips. So in this light, it would be
more effective for us to have foreign tourists. The 4.8 trillion yen in
expenditure on travel by foreign tourists can be considered asexports of services in trade, and this was the third-largest figure
among industries, following automobiles at 12 trillion yen andchemicals at 8.7 trillion yen.
There is a secondary impact of tourist consumption on otherindustries and on transportation. Total consumption for travel in2019 including both Japanese domestic and outbound tourists andforeign inbound tourists was around 29.2 trillion yen. This produced
55.8 trillion yen in additional production and 4.56 million additional
jobs. This is how we can see that tourism will play an extremely
important role in the economy.
So we must consider the tourism industry as a rising one and try
to restore a strong economy using its strength. I believe in particularthat this would play a pivotal role in revitalizing local economies
suffering from a decline in their resident population.
It should be noted that we changed our policy from one focusedon visitor numbers to one focused on quality in this basic plan.
Above all, we are aiming for high consumption by foreign tourists
and also at developing local tourism industries. In this plan, we
consider long-haul customers staying longer in Japan as well as
wealthy ones as important elements in tourism promotion.
Toyoda: Ms. Okuda, your inn has five rooms in the main building
and two rooms in a separate building and super high-class inn. In
Japan, we would tend to think an egalitarian society is better, but
looking at the rest of the world there are not a few super-wealthypeople. Do you think an inn or a hotel that could attract such veryrich tourists would produce added value?
Okuda: I think consumption per tourist would be a more important
goal in tourism promotion than the number of visitors. Our
customers would be ready to pay whatever is needed to have awonderful experience. We have only seven rooms and it is an oldinn, almost 160 years old. We must follow unique restrictions
regarding landscape preservation and we neither have any outdoor
open-air bath nor a vast garden. Given these conditions, why docustomers choose our inn? I believe the reason is the invaluable
experience we offer – namely, experiencing traditional Japanesecustoms. For example, today there are some young Japanese whohave never slept on a futon or have never seen fusuma or tatami or
have never had a special sake drink to celebrate New Year’s Day. We
welcome those young Japanese and foreign tourists to experience
traditional Japanese customs in our facilities. Therefore, ourcustomers do not say “stay” but “experience” in referring to their
being with us. Their experience with us is worth the extra cost. A
Japan SPOTLIGHT • July / August 2023

7

cheap hotel would be good enough just for staying, as even cheap
hotels are well appointed today. So the focus of tourism promotion
must be on how much money tourists have spent rather than thenumber of foreign visitors.
Investment in tourism facilities is of course important. Even
though they can have a good experience, if a toilet has to be sharedby customers in a hotel, wealthy customers would not come. Thereneeds to be minimum facilities for good customers, and even more,investment in human resources. In a small inn like ours, there arelots of occasions when our staff communicate with the customers
and their skills strongly affect the customers’ satisfaction. How muchknowledge and experience staff members have is crucial and thus
education for the staff is indispensable. Such education is limited insmall businesses and this will be a future issue for tourism
promotion.
Assuming that foreign tourists are increasing, local people would
not be convinced of the benefits of tourism unless they could earnmoney. They would consider it a nuisance. In particular, Kyoto
people, even only those in the Gion area, would feel this strongly andconsider it tourism pollution, since it would be more difficult to ride
on a bus and go to shops often due to excessive tourism. You
cannot gain locals’ support for tourism promotion if this situation
continues.
I hope there will be a local system for local residents to gain thebenefits. For example, we could have a different fee for public
transportation to be applied for local residents and tourists. Other
facilities like museums could apply such a system as well. This is
how municipal governments could gain money, and this money
could eventually be to the benefit of the locals.
Toyoda: Are there many foreign tourists coming to your inn?
Okuda: Yes. Around May, half of our customers are foreigners. But
we are restricting the number of foreign customers, because theytend to plan their trips a long time in advance and if we accepted
reservations so far in advance, our customers would all be
foreigners. However, most of these foreigners come to our inn, sucha small place in Gion, to enjoy experiencing a traditional Japanese
lifestyle. If they find themselves surrounded by all foreign customers,
they would be disappointed. In this light, we try to avoid having all
the customers being foreigners at any given moment and create anenvironment where the majority of customers are Japanese.
Toyoda: Is there such a strong demand around the world for staying
at your inn?
Okuda: Yes. There are now 60 to 70 inquiries per day from abroad.
We have to turn down most of the requests for reservations because
8 Japan SPOTLIGHT • July / August 2023

we have such a strong demand from overseas.

Enhancing Tourism Industry’s International
CompetitivenessToyoda: The last subject for discussion is what to do to improve theJapanese tourism industry’s international competitiveness. First, I
would like to ask Mr. Hoshino. The goal for the number of visiting
foreign tourists in 2025 set in the Fourth Tourism Nation Promotion
Basic Plan is to exceed the number in 2019 and it looks rather
modest. But it may be reasonable because of the remaining threat ofthe pandemic. Anyway, you would need to have an ambitious goal
and a policy to realize it. Could you explain the essential points of thepolicy support adopted in this basic plan? I think most importantly
the industry must maintain business profitability by itself rather thandepending on government subsidies. In this sense, the issue of theIntegrated Resort (IR) is very important. Could you give your view on
this as well?
Hoshino: The Basic Plan was revised on March 31, 2023. The pointsof this revised plan are to aim at building up sustainable tourism
spots nationwide, restoring inbound tourism and expanding
domestic tourism. These three goals are expressed with three key
phrases: “sustainable tourism”, “consumption expansion” and“promotion of tourism in local regions”. As goals for 2025, aiming at
raising the quality of tourism, we set up new goals such asincreasing the number of regions engaged in building up sustainable
tourism spots to 100, increasing a foreign tourist’s consumption for
travel to 200,000 yen, and also two-night stays in local regions ofJapan per foreign tourist. Of course, we set up a numerical target forforeign tourists visiting Japan as one that exceeds the level in 2019,
but the core of this plan is to establish goals for the improvement ofquality.
The first goal, building up of sustainable tourism spots, will bepromoted in the belief that we need a framework to create a virtuous
cycle in local communities and economies through tourism
promotion. In particular, on the issue of business profitability, we areaiming to link increased profitability or productivity withimprovement in the working conditions of employees.
We will subsidize investments for the restoration of tourism spots
by enhancing added-value, such as large-scale reforms of banquet
rooms into something else, given less demand for them under the
pandemic, and also promote digital transformation (DX) in tourism.
We will help the tourism business in replacing a wide range ofmanual work with digital technology and thus reduce human labor.
But we will also promote a policy of raising and keeping humanresources in tourism.
As Ms. Okuda mentioned, we want to create a firm consistency

between preserving local nature and culture and developing tourism,
while maintaining the local residents’ sympathy with our plans. We
want to pursue a policy for such consistency between the two.
As for restoration of inbound tourism, we want to achieve the goalof the number of foreign tourists visiting Japan exceeding the level of2019 as quickly as possible. In doing so, expansion of inboundtourists’ consumption and promotion of visits by foreign tourists toJapanese regions are very important goals, and we reflect these key
concepts in our basic plan with new numerical targets such as
200,000 yen in consumption per foreign tourist and two-night stays
in local regions per foreign tourist. More specifically, we will
promote a “restarting tourism movement” to publicize Japan’s
attractions by creating special experience for foreign tourists all overthe nation. We are working hard now on the contents of these special
experiences.
On the issue of attracting wealthy foreign tourists, with Mr.
Atkinson’s guidance, we came up with five concepts for this. The
first is “sell” – meaning how to create potential value to meet theneeds of high-end tourists. The second is “lodge” – meaning how to
prepare high-class lodging facilities for those wealthy tourists. The
third is “human resources” – meaning how to assign the right staff
for such lodging venues and how to develop the hospitality shown by
tour guides. The fourth is “connection” – meaning how tocommunicate in particular with potentially wealthy foreign
customers. And the fifth is “transportation” – meaning how todevelop new transportation means for these wealthy people, such as
those visiting by private jet, to create added value for them. In March
2023, we chose 10 regions as models and are ready to discuss how
these concepts can be specifically achieved.
Our strategy for expansion of Japanese domestic tourism isimportant as well, and this is the third goal defined in our basic plan.
We aim to spread demand for tourism across the months anddevelop a new demand for domestic travel that will lead to the
expansion of employment in tourism-related sectors. Morespecifically, we are planning to promote new practices for holidays
and create second hometowns.
In talking about investor relations, casinos are always mentioned,but I think it should be emphasized that an IR could attract not only
casinos but also international conventions and business customers.
Business customers are good customers, as consumption per
individual is high. Furthermore, they spend time not only working but
also on tourism and they would stay longer at such resorts. I think it
would be important to meet various people’s needs in thinking about
a future tourism promotion policy.
Toyoda: Ms. Okuda, could you talk about what you expect theJapanese government to do, on behalf of people engaged in tourism
in Japan? Also, if you have any advice for local tourism industry

people, could you tell us?
Okuda: Among many things I would like the Japanese government todo, human resources development for tourism that I mentioned
cannot be accomplished in a short time. In Kyoto, there are not only
big hotels but also small ones and inns. Those small ones inparticular cannot afford to spend money for education of their staff
or human resources development. They cannot spend much timeeither on that in the midst of Covid-19 and they also suffer from alabor shortage. We will need public support in this area. I would likethe government to start working on creating a system for support bywhich we can send our staff to public education schools for a certain
period to help raise the quality of services. Another thing I would likethe government to do is to improve the quality of tour guides, who
are the important links between tourists and the destination sites.
For people in the local tourism industry, I suggest they come up
with some creative ideas. A good example often mentioned is the hotsprings in Kurokawa in Kumamoto Prefecture. They were once
almost deserted and at a certain stage they found they could notcontinue business, and so all the hot spring village people got
together and decided to issue a certificate for bathing to be used inany hot spring among all the lodging facilities in Kurokawa, and thiseventually led to explosive popularity.
However, no matter how creative the ideas may be to attract
foreign tourists, they will be difficult to attract if the area has bad
traffic access. Convenient transportation, at least to some extent, will
be necessary.
Toyoda: Mr. Atkinson, if Japan aims to be the top tourist destinationin the world, I think government-private sector collaboration will benecessary to boost the tourism industry’s competitiveness. Could
you tell us more specifically what kind of private business efforts andpublic policies are desirable in this light? Please also tell us what islacking in government and private business efforts at this moment.
Atkinson: Japan’s tourism strategy has been successful mainly
because it has a both a target to increase the number of inboundtourists balanced by a revenue target. The quantitative goal istempered by the qualitative goal.
No major car company produces just one car. To serve a global
population of 8 billion, there is a wide variety of options available toanswer to the very wide range of demand. Some people prefer todrive a small car, while others prefer SUVs, and yet otherdemographics own expensive sports cars. Toyota has many kinds ofvehicles to meet such diverse needs, and tourism is no different.
Increasing the number of tourists visiting the prefectures, towns andvillages can be achieved relatively easily, if aimed at tourists who do
not spend much money. But this is does not boost the local
Japan SPOTLIGHT • July / August 2023

9

economy and above all imposes a heavy burden on local
communities.
During the administration of late prime minister Shinzo Abe I
argued passionately for the establishment of a number and a revenue
target to address the issue of over-tourism. Japan’s traditional
tourism business model was not focused on increasing revenues per
traveler. As a result, the industry under-invested and simply focusedon increasing the number of people visiting in order to increase
revenues. The strategy now is to raise the spend by tourist while
increasing the numbers. Obviously, it is preferable to have 30 million
tourists spend 10,000 yen each, than 50 million people spending
only 1,000 yen each. There needs to be more capital investment andinvestment in human resources in order to raise the average spend.
This is vital to attract wealthier tourists.
The three basic forms of investment – in R&D, facilities, andhuman resources – are the keys to raising revenues anywhere in thewhole economy. Tourism is no exception. In order to raise theaverage spend, we need to raise both the quality and the salaries ofthe people working in tourism. You cannot earn a high salary only bybowing. Staff need to be knowledgeable, to be able to communicate
effectively with customers, which may require foreign language
ability, and to be able to resolve issues. Staff may need to be able torespond to questions about history if in Kyoto, or if in a national park
about activities or questions about the local flora and fauna. It is thus
inappropriate for a hotel to expect guests to pay a higher room rate
and then to pay most of its staff the minimum wage. A tourism
strategy must aim to raise wages in the industry, and for that there
needs to be investment in the appropriate hotel infrastructure.
The restaurant industry is one of the only sectors in Japan that has
successfully met the great diversity of consumer needs, ranging
from Western cuisines and ethnic cuisines to Japanese cuisine, andrunning from the expensive all the way to the very cheap. Sushi, forexample ranges from the cheap conveyor-belt sushi restaurants tothe very expensive high-class ones in Ginza. Many of the people
working in Japan’s restaurant industry have excellent language skills.
One of the greatest attractions for tourists in Japan is that you canenjoy such a variety of global cuisines at such a high level in a single
country. Among the many tourism resources in Japan, food is themost highly evaluated by overseas tourists. And not just forJapanese cuisine. Japan has perhaps the broadest range ofinternational food at the highest level of any country in the world. It
is thus wrong to promote only Japanese cuisine to the rest of theworld. There are amazing coffee shops and also excellent curryrestaurants in Japan. In Kyoto, there are so many excellent bakeries.
The hotel industry in Japan is not on the same level as therestaurant and pubs; nor are Japanese tour guides. Japan needs toredouble its efforts to achieve high profitability, as there is a hugeworld population out there. There is more than enough global
10 Japan SPOTLIGHT • July / August 2023

demand to support more profitable businesses.
Finally, there is the question of local government and overtourism. If residents of Kyoto cannot get on a city bus because there
are so many tourists from abroad, then why doesn’t Kyoto city
simply increase the number of buses? Over-tourism, in my view, iscaused by a lack of investment in infrastructure, mainly by local
authorities. In Italy, 20 million people visited Venice every year.
Venice has a population of around 60,000. In Kyoto, before Covid thenumber of overseas tourists was probably around 4 or 5 million atpeak, and there are many more than 60,000 residents. Relative to
Venice or London or Barcelona, Kyoto was absolutely not sufferingfrom over-tourism. Kyoto rather was suffering from a lack ofinfrastructure investment and an insufficient response to bottlenecks
highlighted by tourism. The local government was the cause of any
inconvenience suffered by Kyoto residents when the number oftourists increased.

Concluding Remarks
Toyoda: In conclusion, could you all please give a key phrase orconcept for promoting Japanese tourism?
Okuda: Human resources, facilities and a virtuous cycle between
them.
Atkinson: Let’s make money.
Hoshino: I would strongly recommend to people all over the world to
see the changing landscape of tourism in Japan as the result of ourefforts to resolve the challenges we face.
Toyoda: Thank you very much, all of you. Tourism is undoubtedly arising industry in Japan and an important industry for Japanesepeople. I would like all of you to continue your valuable efforts topromote it.Written and translated by Naoyuki Haraoka, editor-in-chief of JapanSPOTLIGHT, with the cooperation of Tape Rewrite Co.

Special

Article 1

Japan’s Foreign Diplomacy & Security Strategy, & Its
External Economic Strategy in Relation to the Taiwan Crisis

By Satoshi Morimoto

Conflicts & the International OrderThe peace and security of international society is maintained byorder based on international law. In regard to such international law,in order to prevent the recurrence of a global-scale war, after WorldWar I the League of Nations Convention was concluded and the
League of Nations (LON) established. However, since the LON
Convention had not formulated effective sanction measures against
countries that violated the Convention and waged war, it is thoughtthat Adolf Hitler found loopholes in it and was emboldened todissolve Czechoslovakia and proceed with his invasion of Poland, thelatter step sparking World War II.
The Charter of the United Nations, concluded after WWII, focusedon compensating for this defect in the LON Charter and establishednecessary measures based on the Resolutions of the UN Security
Council (UNSC) in regard to acts that ran the risk of disturbing themaintenance of the peace and security of international society.
However, in these UNSC Resolutions, the right to veto by permanent
member countries was recognized. In his recent invasion of Ukraine,
Russian President Vladimir Putin, aware that sanctions based on the
UN Charter do not have efficacy, determined to use force. This defectin international law for the purpose of maintaining the peace andsecurity of international society was clarified also in the Soviet
Union’s military invasion of many countries in Eastern Europe during
the Cold War period, and this loophole was revealed once again in
the Ukraine war.
There was an interval of 39 years between the Napoleonic Wars
and the Crimean War, and one of 57 years between the Crimean War
and World War I, totaling 96 years. Thereafter, there were 21 years
between WWI and WWII, and 77 years between WWII and thecurrent Ukraine war, giving a total of 98 years. As shown in boththese examples, a war with the characteristic of demarcating global
order occurs around once every 100 years, centered on Europe.
In Europe, there is a growing feeling of concern about the risk that
the Ukraine conflict could develop into a world war. Reform of the
UNSC is not progressing, and as the probability of the use of nuclear
weapons increases, this risk is becoming a more realistic possibility.
From around the time when one year had passed since the start of
the Ukraine war, with this growing sense of risk, the public desire forthe reopening of peace negotiations has been increasingly
expressed. Moreover, recently in the United States, in regard to its
support for Ukraine, since the US has become embroiled in
https://www.jef.or.jp/journal/

Author Satoshi Morimoto

disastrous wars in the past such as the Iraq War and the Afghanistan
War, there have been concerns that it might again fall into the samekind of situation in Ukraine. Meanwhile, there are also concerns that,
although US support for Ukraine might be understandable, therealities of the US economy suggest that financial reconstruction
should be carried out instead, and there should be more emphasison national interests such as preventing the flow of immigration. In
this regard, victory in the Ukraine war, along with responses to the
Taiwan crisis, would be taken as an indication of the US commitment
to its allies; but at the same time many people object to this stance,
holding the view that efforts to maintain international order throughstrong engagement by the US simply match US national interests.
In any event, in the present war, there are fundamental
discrepancies in the stances of Russia and Ukraine in talks aimed ata ceasefire. Even if the time comes for a reopening of ceasefire talks,
it will be the state that dominates militarily that will have theadvantage in such talks, and so both Ukraine and Russia feel theymust first win the war to be in the superior position. This is the
background to whether the fighting continues or even worsens in
intensity.

Maintaining International Order by Rule of Law
The Cold War began after WWII, around 1947, and continued foralmost half a century until it came to an end in 1990-1991. For about
15 years after the end of the East-West Cold War, a US-led unipolarworld continued. However, from 2006 to 2008, this unipolarity
started to change, in particular due to situations in the Middle East.
During this time, Russia continued to experience suffering in its
attempts to rebuild the state post-Cold War, but brought two
Chechnya wars to an end in about 2009 and slowly regained its
position as a major nation. In 2010, China overtook Japan to become
the No. 2 global economy, and since then its dramatic progress andnational ambitions have come to be seen as a threat to the US.
In 2014, the annexation of Crimea by Russia and China’s
incursions into the South China Sea occurred at the same time, andsince this time there has been a strategic battle between the US andChina/Russia, focusing on differing values and national systems.
Although the US, which emphasizes democratic values, along with
its allies and friendly nations comprise slightly less than half theworld’s countries, the countries of the global south, comprising
China and Russia along with emerging and developing economies,
Japan SPOTLIGHT • September / October 202313

with their authoritarian or hegemonic regimes, now make up slightly
more than half of the world’s countries. The battle between these twogroups of nations has been brought into the Ukraine conflict, andtheir strategic confrontation has become even more obvious.
Although the Ukraine war has not yet become a global conflict, it issteadily developing the character of a proxy war in the fight between
these two groups.
At the same time, no matter what happens in Ukraine, the IndoPacific region is facing another crisis, namely the realization of the
Taiwan crisis scenario. If a war is sparked by China’s attempt toreunite with Taiwan, it would not only have historical significance but
would also bring the majors powers to a crossroads, possibly
resulting in the end of the battle between them. In any case, whether
it be the Ukraine war or the Taiwan crisis, power-based domination
spreads confusion and does not alter the fact that a world will arisein which international order does not hold.
For us to maintain an international order that strictly follows therule of law, we should reconfirm that this is the key to bringing peaceand stability to international society.1 In a society based on the ruleof law, the values of freedom and democracy are the themes thatshould be most emphasized, but it is not possible for such values tobecome the standard for building an international order.
Meanwhile, in countries that implement control based on
authoritarianism or despotism, there is disgust at seeing freedom
and democracy used as justifications for conducting interference inthe domestic affairs of other countries. Moreover, it must not be
forgotten that since the Cold War era these countries have received
some kind of support from Russia or China, while in contrast they
have had no support at all from countries in the West. A certain
African diplomat is said to have remarked at the UN, “If Ukraine wasan African country, I wonder if there would have been this level of
support from countries in the West.” After the invasion of Ukraine, in
the implementation of the UNSC Resolution to condemn Russia, 52
countries of the world did not agree, including 26 of the Africancountries, about half of them (141 countries agreed).
In fact, from the second half of the 2010s on, there has been a
gradual reduction in the number of countries with democraticsystems, and it is no exaggeration to say that democratic systems
are facing a crisis.2 The US has held two democracy summits,
inviting more than 100 global leaders to promote the importance of
democracy.3 But simply claiming the importance of democracy does
not by itself enable the building of international order.
Authoritarian and despotic countries such as China and Russia
14 Japan SPOTLIGHT • September / October 2023

exert pressure on other nations of the global south, criticize powerbased changes in present conditions such as the Ukraine war and thedevelopment of nuclear missiles by North Korea, and do not agreewith the UNSC Resolutions to impose sanctions. Furthermore, China
and Russia, in order to continue the Ukraine conflict, provide mutual
support, expand military access and infrastructure in the countries ofthe Middle East, the Gulf, Africa and Central and South America, anduse political and economic intimidation and pressure against
democratic countries. This is further increasing the instability of not
only Ukraine but also the balance within various regions of the world.
However, this is neither a new Cold War nor an increasingly multipolarized world. Multinationalism based on the rule of law is aconcept that expresses reality. With this multinationalism as a
background, we must further develop the recovery of order based on
the rule of law for international peace and prosperity.
For the time being, there is no sign of any country or organ that
could take the lead in mediating ceasefire discussions for the Ukraine
war. The UN, Turkey, NATO, etc. cannot fill this role. Looking at theRussia-China summit meeting that took place in March, even though
its results may be unclear, there are now more countries that think
China itself is a major nation that could influence Russia, and visits
to China by Western leaders have started. From this viewpoint, weshould pin our hopes on China and have it be a mediator. This could
bring about a separation for the advanced Western-side countries(decoupling). Firming up the unity and cohesiveness of Westerncountries was the biggest topic of discussion at the Hiroshima
Summit in May 2023 of the G7 advanced nations (including, apartfrom the members, seven participants from eight outreach countries
and organizations that were also invited). However, although it may
depend on the course of future battles, in the end it is likely that
there will be no other method than having the US act as a mediator
to resolve matters.
In any case, in addition to efforts by the G7, it is encouraging thatcountries that respect the rule of law, and cooperative relationships
such as alliances and relationships based on security concerns,
typified by NATO and the US-Japan and the US-Japan-South Korea
relationships (and also by other groups such as the four-country
QUAD group of the US, Japan, Australia, and India, and the 12U2Group of India, Israel, the United Arab Emirates, and the US) are
advancing. There should be greater emphasis on closely advancing
these kinds of alliance relationships and relationships of like-mindedcountries as a whole.
Further, in regard to reform of the UNSC, while genuinely

accepting the necessity for this, there is a need to deepen
discussions on concrete measures, including electing member
countries from Africa and Central and South America. However, until
a new composition of these types of international relationships canbe constructed, for some time we must first safely overcome boththe Ukraine war, which exerts a decisive influence on
multinationalism, and a Taiwan emergency that might occur after
that. We are living in a period when facing these issues is ourhistorical destiny.

Rivalry Among Superpowers Provokedby Ukraine War
I would like to briefly touch on the impact the Ukraine war ishaving on relationships among major nations, without delving into
details. While it is clear that the war was initiated by Putin, there arevarious perspectives and no consensus on the background andreasons behind it. Putin’s true motives remain unclear, but someargue that, at the least, it is not Russia that is in the wrong and thatinstead the responsibility lies with the US, the European Union, andNATO.
To summarize the arguments mentioned in the introduction: (1)Putin harbors deep resentment akin to a delusion that the US
conspired to bring down the Soviet Union during the Cold War,leaving Russia as just an ordinary major nation afterward, (2) Russia
has a motive to overcome its one-sided territorial crisis perception,
fueled by the expansion of NATO towards Russia’s borders, leading
to a sense of threat from the West, and (3) Russia’s actions are
based on a distorted historical perspective, suggesting that Ukraine
is historically and ethnically under Russian dominion. In particular, it
is a misconception that the cause of the Ukraine conflict can be
attributed to the US; this is a delusion arising from Russia’s antiAmerican worldview and historical perspective.
The outcome of the Ukraine war is unpredictable, but certain
aspects are clear at the moment: 1) Major power relations haveturned into a strategic confrontation between the US and China/
Russia, with the war serving as a proxy conflict for this struggle. 2)
Diplomatic relations between the US-Russia and the US-China havereached a state of near-rupture, with little meaningful dialogue taking
place. 3) China attempted to persuade Russia to engage in peace
negotiations, but Russia insisted that the US bears all responsibility
and requested support and assistance from China, which China
declined, citing the need to avoid becoming a target of economic

sanctions. 4) In other words, China finds itself in a dilemma where it
does not wish to see Russia lose the Ukraine war, but also does notwant to provide support that could lead to economic sanctions
against itself, as Russia’s defeat would allow the US to withdraw
from Europe and potentially create a disadvantageous situation for
China regarding the Taiwan issue. 5) In any event, the global-scale
conflict situation, involving a mix of military and non-military
aspects, is becoming increasingly intense.
If proceedings in the China-Russia summit held on March 20-21,
2023 took place as described above, both Chinese and Russian
leaders seem to be solitary dictators without appropriate domestic
advisors to offer sound counsel. It is also possible that China
engaged in the summit merely to probe Russia’s actual intentions.
Some speculate that China might have pretended to recommend
peace talks with Russia, knowing Russia’s true intentions, in order toreceive positive international recognition. This would raise questions
about why a Chinese Foreign Ministry spokesperson publicly statedthat President Xi Jinping intended to promote peace talks with
Russia from a fair standpoint. Considering the subsequent visits ofEuropean leaders to China after the China-Russia summit, one
cannot entirely dismiss these speculations as incorrect.

Impact of Ukraine War
Returning to the course of the Ukraine war, it is natural that the
US, with the cooperation of its European allies, is focusing on theconflict and seeking to bring victory to Ukraine. That is, one of theaims of the war is to lower Russia’s military capability to the extent
that it cannot invade neighboring European countries again. For
China, it is desirable to exhaust the US as much as possible in the
Ukraine war. China seeks to avoid becoming a common enemy of the
US along with Russia and so opposes Russia’s use of nuclear
weapons, while also wanting to prevent Russia from losing the
Ukraine war. Consequently, even though it is difficult for China tosecure the sovereignty of Ukraine or the withdrawal of Russianforces, while it advocates for peace talks and seeks international
empathy, including from developing countries, it also provides dualuse components that can be used in the private sector as well as
militarily, semiconductors, major equipment, drones, and othergeneric goods to Russia, within the scope not subject to economic
sanctions, sometimes via a third country. Simultaneously, China
purchases large quantities of cheap oil and natural gas from Russia
and finds profits by exporting a substantial amount of consumer
Japan SPOTLIGHT • September / October 2023

15

goods to Russia. As a result, it can be said that, regardless of theoutcome of the Ukraine conflict, without its heavy dependence on
China, Russia would now be unable to exist.
Meanwhile, the Ukraine war is seeing greater changes in combat
dynamics and surrounding circumstances. Serious issues are
growing, including domestic social unrest in areas such as Georgia,
Moldova, and Belarus; tactical nuclear deployments by Russia in
Belarus; grain export restrictions imposed by Russia on Ukraine;international crimes such as abuse of Ukrainians (including childabduction and mistreatment of prisoners); and attacks on Ukraine’s
nuclear and electricity facilities, and destruction of dam facilities.
Particularly alarming is the tactical nuclear deployment in Belarus.
These escalating factors are triggering cautious responses from
Western countries regarding ongoing support for Ukraine,
expectations for the resumption of peace negotiations, concerns overRussia’s inhumane and criminal acts, efforts for postwar
reconstruction, and deep apprehensions about the potential use of
nuclear weapons. In particular, as the likelihood of Russia’s losing
the war grows, the fear of nuclear weapon usage has intensified,leading to growing calls for the resumption of peace talks. However,at the same time this has also become a divisive factor among
Western countries.
In any case, the international community must first achieve an end
to the Ukraine war. Russia’s intentions are strong, and as long as
they remain a significant factor behind the conflict, bringing an end
to the war will not be an easy task. Some believe that the outcome
hinges on Putin’s course of action, but the situation is not thatstraightforward. However, our efforts should be focused not only on
ending the war and preventing a major European conflict, but also onreconstruction and advancing the process towards building stability
for Europe’s future. As a consequence of the Ukraine war, theworld’s weapon systems have rapidly developed, and Eastern andCentral European countries, including Ukraine, have been stockpilingarms.
Furthermore, the economic conditions in these countries areundergoing immense harm due to such factors as the damage
wrought by the war, an influx of refugees, and increased militaryspending. Meanwhile, state relations in Europe are showing signs ofcomplexity and if there is reduced international involvement, thethreshold for the use of force may be lowered, making theconcentrated stockpiling of military assets and weapons in itself apotential destabilizing factor that needs to be carefully considered.
We must try to ensure that such large-scale wars do not recur in
16 Japan SPOTLIGHT • September / October 2023

Europe, and achieve conclusions to this end.

Implications of Taiwan Crisis Scenarios
The next concern is the potential crisis surrounding Taiwan andscenarios that may lead to it. If China’s attempts to reunify with
Taiwan involve the use of force, the consequences would
undoubtedly have a profound impact on the international order on alevel far surpassing that of the Ukraine war. If China were to lose, it
could result in the collapse of both the Chinese Communist Party
system and the Xi regime simultaneously. If China nevertheless does
not give up on this goal, the question becomes how it plans toachieve it. China would certainly want to avoid disruptions to its
economy during any actions related to reunification with Taiwan.
China cannot sustain a prolonged operation like the Ukraine war, so
it would likely seek a short-term decisive conflict within the limits of
its economy to avoid economic sanctions.
At the same time, if the US were to lose, the balance of power in
the Indo-Pacific region would undergo a significant shift, and the US
sphere of influence would retreat to the Second Island Chain in theeast, which includes Hawaii and Guam. The US Indo-Pacific strategy
would collapse, and not only the regional but also the global
credibility of US commitments would be undermined. This would
pose a serious threat to the southwest region for Japan, and a
unipolar world led by China might emerge.
The most serious implication of a Taiwan crisis is that it would not
be a proxy war in the way that the Ukraine conflict can be considered
a proxy war between the US and Russia, but rather a full-scale war
between the US and China, with the high possibility of Russia
supporting China and providing military power in the Far East. Thismeans that a war involving three major global powers – the US,
China, and Russia – would occur in the East Asian region including
the Far East, with Taiwan at the center. In such a scenario, as a US
ally Japan would need to provide full support and cooperation for theactivities undertaken by the US, or it would be challenging for Japanand the US to achieve a favorable outcome in the Taiwan crisis.4
Furthermore, even if the war ultimately ended in a short decisive
battle, the years-long preparatory period leading up to that moment
could be an unprecedented period of intense hybrid warfare,encompassing information warfare, cyber warfare, space warfare,cognitive warfare, and the utilization of information technology andnew cutting-edge technologies. If the lessons from the Ukraine war
were utilized to the maximum, the importance of combat capability

and the industrial capacity to support it would no doubt be fullyrecognized.5 The conflict would assume a three-dimensional nature,maximizing the use of land, sea, and air areas. The key factor
determining success could well be the ability to conduct complex
integrated operations, which would necessitate advanced commandand communication capabilities. The results of the conflict would
have a significant impact not only on the Indo-Pacific region but also
on a wide range of national state relations, diplomatic relations, andthe economic development of countries across Europe, the Middle
East, Africa, island regions, and Central and South America.
Considering the above, the ongoing Ukraine war and a potential
Taiwan crisis in the future could lead to situations that reshape thecourse of modern human history. I would like to stress that, in the
midst of this potentially major transformative period, this article
offers a comprehensive analysis and discussion of the diverse
perspectives of experts in numerous fields in order to discover what
path we should take and the optimum means of doing so.

References
1. On Jan. 12, 2023, Japanese Foreign Minister Yoshimasa Hayashi
hosted a ministerial-level debate on the rule of law at the UNSC
(Japan held the presidency). Representatives from 77 countries,
including UN Secretary-General António Guterres, participated.
In the debate, Hayashi called for solidarity in upholding the ruleof law.
2. According to the annual report released by Swedish research
institute V-Dem (Varieties of Democracy) in March 2023, for theyear 2022: a) 32 countries with liberal democratic systems
accounted for a population of 1 billion people (13%), and b) 58
countries with democratic systems that have electoralmechanisms accounted for a population of 1.3 billion people(16%) – a total of 90 countries with either liberal democratic or
democratic systems with electoral mechanisms accounting for a
total population of 2.3 billion people (total: 29%); c) 33 countries
have autocratic systems with a population of 2.2 billion people(28%), while d) 56 countries have autocratic systems withelectoral mechanisms, with a population of 3.5 billion people(44%) – a total of 89 countries with autocratic systems(representing a total population of 5.7 billion people, 72%),
showing an increase in the number of countries with autocraticsystems.
3. The Democracy Summit was one of President Joe Biden’s

election pledges. The first summit was held on Dec. 9-10, 2021,
while the second summit took place on March 29-30, 2023, bothonline. Approximately 110 countries participated in the firstsummit, and about 120 countries participated in the second.
Biden’s Democracy Summit Declaration presented during thesecond summit received support from 73 countries (around60%). While the US and European countries emphasized theimportance of democratic outcomes, there were divisions within
the region of the Association of Southeast Asian Nations(ASEAN). Although the Philippines, Malaysia, and Indonesia wereinvited to the summit, other countries such as Thailand andSingapore were not. Furthermore, there were discrepancies
between the views of the global south countries and thesummit’s objectives, with the president of Indonesia, forexample, expressing concerns that democracy should not be
used as a tool of containment.
4. In The Real China Hands: What Washington Can Learn from its
Asian Allies by Michael Green, chief executive officer at theUnited States Studies Centre at the University of Sydney, theauthor points out that Japan’s options in response to thedeteriorating power balance with China are as follows: a) aligningwith the emerging power dynamics, b) strengthening national
capabilities in response to threats, and c) enhancing alliancerelationships. Green suggests that former Prime Minister Shinzo
Abe’s choice of the third option resulted in retaining significant
influence in Japan’s policies towards China. This observation
was made on Nov. 3, 2022, on the website of the US Studies
Centre.
5. During his testimony before the Senate Armed Services
Committee, Roger Zakheim, Washington director of the Ronald
Reagan Presidential Foundation and Institute, highlighted somelessons from the Ukraine war, such as a) that combat force
capability remains crucial, and b) that industrial capacity could
become a vulnerability for the US. This testimony took place on
Feb. 15, 2023, as part of discussions on “Global Security
Challenges and Strategies”.
Article translated from the original Japanese by Jillian Yorke.

Satoshi Morimoto is a former defense minister and an expert on military
security.

Japan SPOTLIGHT • September / October 2023

17

COVER STORY • 1

Roundtable with Prof. Naoyuki Yoshino, Prof. Mariko Watanabe, Prof. Shujiro Urata & Masakazu
ToyodaK

ey Strategies for Raising Sustainabilityof Asian Economic Growth in the Ageof a Disrupted World Economy

By Japan SPOTLIGHT
Prof. Naoyuki Yoshino, professor emeritus at Keio University
Prof. Mariko Watanabe, professor at Gakushuin University
Prof. Shujiro Urata, professor emeritus at Waseda University
Moderator: Masakazu Toyoda, chairman & CEO of the Japan Economic Foundation (JEF)(Roundtable on Sept. 4, 2023)
ParticipantsProf. Naoyuki Yoshino

Prof. Mariko Watanabe

World Economic Outlook
Toyoda: The Covid pandemic that has damaged the world economy
and human life so deeply seems to be calming down today, andexpectations are high for the global economy to recover. But given
the rise in fuel and food prices as a result of the Ukraine war, major
economies’ tightening monetary policy to curb inflation and the
difficulties of the Chinese economy, most economists predict only
modest growth for the world economy. According to the IMF World
Economic Outlook published in July 2023, global growth is predicted
to be around 3% both in 2023 and 2024. Since its average annual
growth rate from 2000 until 2019 was 3.8%, this predicted growthindicates a considerable slowdown.
Meanwhile, expectations are focused on Asia. Looking at China,
the ASEAN5 (Indonesia, Malaysia, the Philippines, Thailand andSingapore) and India, high economic growth is to be seen in India,
China and ASEAN, in that order. Earlier this year, JEF completed
research in collaboration with ERIA on “Asia-wide industrial policy”
and METI published a White Paper on International Economy &https://www.jef.or.jp/journal/

Prof. Shujiro Urata

Masakazu Toyoda

Trade 2023 in June. On both research outcomes, I would like to raise
the following three issues for discussion.
First, on the issue of what the White Paper pointed out, namely,“the world is in transition to the age of disruption from the age ofharmony achieved by free trade”, what must Japan do as a nationthat has been pursuing trade liberalization?
Secondly, on the question of declining Chinese economic growth,
why is this happening and how serious is it?
And thirdly, what should Japan do to achieve resilience in global
supply chains against the background of rising geopolitical risks? Is
it reshoring or building up an Asia-wide supply chain throughstrengthened relations with ASEAN or India?
We have three distinguished Japanese economists for these
discussions. Prof. Naoyuki Yoshino is a professor emeritus at Keio
University, knowledgeable on the structural economic issues of the
global economy. Prof. Mariko Watanabe is a professor at Gakushuin
University, an expert on the Asian economy including China. And
Prof. Shujiro Urata is a professor emeritus at Waseda University, aleading economist in Japan on issues of the international economy
Japan SPOTLIGHT • November / December 2023

3

including the WTO.
First, on the question of “transition to disruption”, the White Paper
pointed out that we are entering an age where geopolitical risks andeconomic security risks are prevalent. In general, its background is
the confrontation between the West and China, and also Russia, as
revealed by the Ukraine crisis. In addition, the Global South,
supporting neither of them, makes this situation more complex.
Prof. Yoshino, could you please express your view first on thecurrent world economy and the role of Japan?
Yoshino: I think this White Paper covers all the key issues. One is
the issue of restructuring of accumulated debt following a series offiscal stimulus steps to cope with the pandemic. Global climatechange, the rapid depreciation of the yen, whether temporary or
structural, the direction of FDI and domestic investment, SMEs andstart-ups, as well as the need to accept skilled foreign labor – all are
mentioned in this White Paper. It is a very comprehensive andextremely good paper.
Among these issues, I would like to mention inflation in Japan,caused by rising oil and food prices, and touch upon the role ofJapan in the world economy from my standpoint. Monetary policy inordinary times is not effective in curbing inflation caused by rising
import prices. This is because monetary policy in general is expected
to control aggregate demand but the current inflation comes fromthe shock to aggregate supply. The best policy to deal with this is toraise aggregate supply by boosting total factor productivity. One big
issue, in this regard, is why productivity growth or technologicalinnovation encouraging it has been stagnant this past decade.
In Japan, where we face the challenge of an aging society, I
believe we will need more labor participation by elderly people fromnow on. So we should promote innovation such as robots that can
assist these older people in their labor participation. With nations
such as South Korea, China, and Thailand in Asia and also theEuropean Union where societies are rapidly aging, these robots
would constitute a large export industry for Japan.
Secondly, I noted two points on my first visit to Southeast Asia in
1984 that indicated Japan’s supremacy in Asia. One was that, withfour distinct seasons each year, Japan has a more favorable climate
than any nation in Southeast Asia and this produces a greater
working efficiency. The other was that, having visited libraries inuniversities in Southeast Asia, I found there were more books inJapanese university libraries than in Southeast Asian ones, where I
found very few good books. So these things convinced me thatJapan would never be surpassed by any Asian nation.
However, at this moment, with well-developed air conditioning andthe Internet, all Asian people, if they understand English, can accessa wide range of references without visiting a library. They can study
or work almost anywhere in more comfortable circumstances, and I
4 Japan SPOTLIGHT • November / December 2023

think this is how Asian learning standards are rising. Also, there aremany people with English abilities in places such as Singapore andMalaysia. The key to winning the competition in Asia is how rapidly
people can understand English references, and it will be crucial, in
this light, for Japan to maintain its educational standards.
Next, I think the weak yen will continue in the long run as astructural phenomenon. This will favor Japanese exports, but
exports in quantity will not increase very much, since many Japanesefirms have already shifted their production bases overseas. In termsof imports, the weak yen triggers inflation in the nation, but forforeign tourists, the cost of Japanese goods will drop and so themerits of tourism in Japan would rise.
Finally, on the future of the Chinese economy, the strength of
China’s economy has come from controlled exchange rates to someextent, and that enabled China to sustain global export bases. But
with the gradual liberalization of capital transfers, it seems to begetting more difficult for China to control its exchange rate. I
mentioned in May 2019, in an article in a Hong Kong journal, that
Chinese real estate prices had reached a bubble in terms of Chinese
economic indicators. I mentioned the same thing in NHK WorldNews highlights. In response, many Chinese said that the Japanese
bubble economy was born after the end of the High Growth Era butthat Chinese real estate price rises were not the outcome of a bubble
economy as the Chinese economy was still in the midst of growth.
But I believe that excessive investment in real estate seriously
affects China’s local public finances. The reason is that Chinese local
governments with small tax revenues maintain their revenues by
selling land owned by the public sector. So Chinese local publicfinances are now facing a challenge.
Toyoda: The next question is for Prof. Watanabe. On the issue of
their relations with the Chinese economy, G7 leaders discussed
whether they should pursue decoupling or de-risking. Eventually theyagreed on de-risking as proposed by the European nations. The
White Paper made an analysis on this question with two scenarios.
The first one involved 100% tariffs set mutually and non-tariffbarriers, and that probably indicated decoupling, and the second one
showed a division of the economies like the US-China trade war,seeming to imply de-risking. It warns that the first case’s impact on
the world economy is considered to be a negative 7.9% and thesecond one’s is a negative 2.3%. I think it would like to say that theconfrontation between the United States and China would result in
no benefit to any country. However, if China attempts to reunite with
Taiwan by military force, I am afraid we will have to go in the
direction of decoupling. What do you think about the future of ChinaTaiwan relations and their economic impact?
Watanabe: If decoupling truly happens, there would undoubtedly besignificant economic damage to Chinese and the world economy. As
Prof. Yoshino mentioned, what the world economy is facing is
nothing but a supply-side shock. Decoupling of supply chains forpolitical interests would exacerbate this shock. So by looking at
China’s policy stance carefully and addressing its challenges
correctly, pursuing de-risking is needed. And the most crucial targetof de-risking must be to raise to the maximum the cost of enforcing
any change in the current situation through military force. The
greater the economic benefits of maintaining a peaceful status quo,
the bigger the lost benefits by military action would be, and theselost benefits would be the cost of military action.
In the case of Russia, it was originally reluctant to join
globalization through manufacturing and it adopted a development
strategy based on exporting commodities, and thus this opportunity
cost was low and it decided to launch a military invasion.
International trade rules have been constructed to manage andsecure the cost of divergence from globalization. So it is necessary
to use these rules at this moment. However, the existing rules are
not well prepared for dealing with authoritarian nations’ policies orbusiness customs different from the free and democratic nations andso it will be necessary to upgrade them.
We often see the “Taiwan Crisis” mentioned in the media now.
China and Taiwan have been claiming sovereignty over the island foralmost 70 years, during which time there has been permanent
military tension between them. This tension is the basis of the“crisis” and we should take good note that any Chinese action toreunite with Taiwan through military force could topple the global
economy, not just those of Taiwan and Japan. In such an event,many of the industries in Taiwan would move to the US, and I think it
would be Japan that would be in the biggest trouble. In order tomake this difficult to happen, I think it will be necessary to maximize
the costs to China of any military action through rules anddisciplines.
What are these points of discipline? The issues of state-owned
companies or industrial policies are often mentioned with regard to
China. I think we should set up international rules to tackle a type ofindustrial policy that allows some countries to monopolize profits
unilaterally. Additionally, we should have rules that ensure thegrowing benefits are commonly shared by all players. While the US
opposes this, I think Japan, the Global South or the EU can supportit.
Meanwhile, a more critical issue in current rule-making is that
there is no clear rule on how to define the exceptions to free-trade
rules for a reason of national security. Russia, for example, showed
no concern for rules when it launched its military invasion of
Ukraine.
The CPTPP, which China has formally applied to join, has anarticle on the national security exceptions that says an exception isendorsed only after a convincing explanation to the members is
accepted by them. On the other hand, the RCEP, of which China is amember, says that exceptions for national security can be left to any
member’s own interpretation, effectively meaning that, in the RCEP,
there is no rule on exceptions for national security.
Toyoda: The White Paper mentions that historical experience tells usthat every 20 years free trade and protectionism emerge in turn.
Prof. Urata, what do you think about this observation? If it is so, I
believe we should keep supporting free trade as much as possible
even though at this moment protectionism is temporarily dominating
the world. What do you think we should advise the Japanese
government to do with regard to policy? And could you also give
your view on the role of Japan in promoting the CPTPP or RCEP, oreven the restoration of the WTO dispute settlement mechanism?
Urata: I roughly agree with the idea that free trade and protectionism
emerge in turn every 20 years, but we need to clarify whether it isexactly 20 years or not. Looking at the history of the 20th century,
which began with free trade, World War I and the Great Depression
followed it and caused significant damage to the world economy, andthen protectionism took hold. This was then followed by World War
II. Drawing lessons from the negative impact of protectionism, theGeneral Agreement on Tariffs and Trade (GATT) was established andtrade liberalization began. This resulted in expanded global trade andrapid growth of the world economy. Even though there were somecountries that adopted protectionist policies, such as importsubstitution policies, in general trade liberalization was further
promoted during this period.
This trade liberalization trend was then drastically changed withthe global financial crisis in 2007. To counter the damage caused bythis crisis, nations took policies to protect their own economies andindustries. Now the US-China confrontation, the Covid pandemic andRussia’s military invasion of Ukraine have all followed and theuncertainty of the business and economic environment has
increased significantly. Many countries have been taking
protectionist policies to cope with this situation. This is largely what
has been happening recently.
To achieve stable growth of the world economy, expanded tradeand investment must play a key role. To achieve expanded trade andinvestment, it is crucial to minimize the uncertainty surrounding
them, and for this purpose it is important to build up a rules-based
trade and investment system and take full advantage of it.
On the question of the role of Japan in this regard, it is true thatJapan recently joined the Multi-Party Interim Appeal Arbitration
Arrangement (MPIA), an attempt to replace the WTO disputesettlement mechanism which has not been functioning for a while.
But Japan did not join this at the early stage when it was establishedJapan SPOTLIGHT • November / December 2023

5

by the EU, Canada, Australia and others. It was only in March 2023
that Japan joined it after many arguments. I believe that Japan
should have not only collaborated with the EU and others and joinedat the early stage but should also have achieved a leading role increating this mechanism.
Among the many challenges faced by the WTO, besides disputesettlement, is the delayed build-up of trade rules and tradeliberalization. There have been arguments about the creation ofplurilateral trade agreements in specific areas like digital trade,investment facilitation, and micro, small and medium-sizedenterprises (MSMEs), and I think Japan should be playing a role inleading these arguments. Furthermore, assuming that the CPTPP
and RCEP play a key role in trade liberalization and the creation of
trade rules, Japan should endeavor to help increase the members of
those FTAs.
On the question of China’s joining the CPTPP, Japan should bepositive in accepting its membership. Having said this, China’s
membership must be approved only if the requirements imposed by
the CPTPP are met by China; otherwise, it will be consideredpremature if the conditions are not fulfilled.

Current Chinese Economy Development
Toyoda: Our second issue for discussion is the current state of theChinese economy. Prof. Watanabe, it is often said these days that
China suffers from the “Japanese disease”, judging from its realestate recession, high youth unemployment, stagnant consumption
growth, and so on, all leading to deflation. What do you think about
this? What are the reasons for this stagnation and what is theoutlook for the future Chinese economy?
Watanabe: I visited China in July 2023 after a long absence. Many
people said the economy was malfunctioning, and many businessactivities had completely stopped due to the long lockdown from thepandemic. Around December 2022, the economy opened up again
but failed to achieve an explosive restoration. This was largely due tosmaller growth in domestic consumption as well as lower external
demand than expected, implying that the economy had not yet
recovered from the pandemic’s impact. But more fundamentally, I
think there has been a significant rise in uncertainty about domestic
policies and this has been a body blow to the economy.
The low GDP growth rate, high youth unemployment and thepossible bursting of the real estate bubble could be caused not onlyby the failure to reach a full restoration from the pandemic but also
by individual policy mistakes. Youth unemployment has increased
due to restrictive rules on digital companies.
Real estate works in China as a substitute for social security andpeople own real estate for survival. If people become unemployed,
6 Japan SPOTLIGHT • November / December 2023

their livelihood is less damaged if they own real estate. So everyone
is working with the aim of buying property and suffers from realestate prices declining, everyone ranging from the communist
party’s leaders to ordinary people. The ratio of loans in stock to total
GDP reached nearly 250%, exceeding the level in the Japanese
bubble economy. To deal with this, the central government has
provided limits to tighten credit for property purchases to avoid the
bubble bursting, and this policy has resulted in a great shock all
across the nation. It has not only damaged the revenues of realestate companies but has also negatively affected the banking
sector’s credit policies, as well as the steel industry as the main
supplier of construction materials.
The people’s confidence in the future and in government policies
has shrunk. I think we can say that this situation is a result of theless careful policies of those in power to deal with the bubble
economy. In addition, the US and European economies are not yet infull recovery, and so opening up the country will not lead to anincrease in exports. The US-China confrontation could be working
negatively for the economy, but more than that, the world economy
is not in good shape and will basically prevent Chinese exports fromgrowing quickly. I think this is why the Chinese economy isinevitably in bad shape now.
In 2024, the US and European economies will pick up to a certain
extent and Chinese exports will pick up accordingly, so the Chinese
economy should get better on the surface in 2024. But the more
fundamental issue is the rapidly falling trust of the people and theprivate sector which has promoted innovation in government
policies. The current Chinese leaders prioritized dealing with politicalstruggles among themselves over economic policies before thereplacement of the administration’s leading members was fullycompleted in 2022.
Getting into 2023, the Chinese leaders communicated with foreignsubsidiaries and private businesses in an effort to restore trust.
Digital companies with great power and the seeds of innovation
would have been the sources of success for the Chinese economy
and they may still work well to maintain the economy, but there isenormous distrust among the people toward the government. I think
this makes for a negative force against the economy.
Toyoda: According to the White Paper, the country that Japanesecompanies consider increasingly risky is China. Prof. Urata, do you
think rising geopolitical and economic security risks are a cause for
the Chinese economy’s stagnancy? And why do you think Indian
economic growth is higher than that of China or ASEAN, even though
it has not joined RCEP?
Urata: China’s economic problem has been largely caused by realestate depression, at least on the surface. But I believe that stagnant

inward FDI in China due to the US-China confrontation is anotherreason. A growing number of foreign companies have started
investing in ASEAN rather than in China because of the highgeopolitical risks.
On the question of India, its economy has been experiencing highgrowth and I think there are several reasons. From a short-term
perspective, recovery from the pandemic unleashed pent-up
demand, activating private consumption and eventually private
investment. This is the principal reason for current high economic
growth. From a longer-run perspective, the demographic situation
with a growing younger population, structural economic reforms anddigitalization bode well for the future. A rise in the ratio of theworking-age population to the total raises economic growth, and in
the case of India both the working-age population and the ratio to thetotal are increasing. According to a UN estimate, India’s working-age
population will peak in 2044 and the ratio to the total will peak in
2029, so in terms of demography India’s high growth will continue
for some while.
Incidentally, China’s working-age population peaked in 2011 andits ratio to the total peaked in 2007. So demography will play a keyrole in the economic growth of both India and China.
In India, a number of economic reforms have been implemented
by the administration of Prime Minister Narendra Modi. The mostimportant one was the introduction of a common tax on goods andservices all over the nation in 2017. Up until then, the tax on goods
and services had varied from state to state. This tax reform hashelped to greatly improve the business environment and shows that
economic system reform can encourage growth.
Digitalization is another factor behind India’s economic growth.
Modi implemented a “digital India” initiative – a policy to drive
digitalization of the Indian economy – and this resulted in turning
informal sectors with significant weight in the economy into formal
ones. In particular, financial digitalization has made rapid progress,
and that has encouraged a variety of business transactions to beformalized.
A specific example of this digitalization is the introduction of theUnited Payments Interface (UPI) which has dramatically activated theeconomy. UPI provides many private businesses with electronic
settlement services and promotes cashless transactions. It also
makes it possible to have immediate transfers among bank accounts
by smartphones. It makes it easy to pay for shopping with QR codes.
Personal consumption and private investment have both expandedwith the introduction of this system. The development and practiceof UPI has not been achieved yet on such a large scale in developed
nations, but India, a developing nation, has implemented this policy
to maximize the use of new technology. I think that such economic
policy outcomes have made the outlook for the Indian economy very
positive.

Toyoda: There seem to be a growing number of economists sayingthat Chinese GDP cannot overtake the US one, or even if that
happens it would be temporary. I think there are two possibilities:
one is that Chinese global hegemony is achieved 20 years from now,and the other is that Chinese hegemony is not achieved but the US
and its allies establish joint hegemony. This came to my mind inreading the White Paper’s observation that the ages of free trade andof protectionism alternate. Prof. Yoshino, what do you think about
these possibilities?
Yoshino: China has been growing with communism driving politics
and the market economy driving the economy. If the power ofcommunism becomes too great, the market economy will stagnate
under this political influence. Unless China achieves a balance
between the two, it could fail to achieve real high economic growth,though it could achieve growth to some extent. Russia’s case is, I
believe, a good example. In either China or Russia, if private
businesses cannot work well, they would move to other nations. So
it is possible that the liberalization of the market economy in China
could face a turning point under the current political system.
Another point to be noted is that the Chinese economy’s strength
comes from the government’s control over exchange rates. With thisgrip on capital movements, China can monitor the flows of funds
through all the financial institutions. This means that it can regulate
capital movements and continue to control exchange rates. This is
the source of China’s strength. So another key issue is whether
China can continue to control exchange rates while allowing capital
liberalization to a certain extent. If China’s exchange rate control
which also leads to control of exports and imports is gradually
weakened, it would weaken the Chinese economy as well. I think inthis light it may be difficult for China to continue to expand very
considerably. But I do think it will maintain the strength to transplantother nations’ industries or technologies to itself.
Finally on the question of real estate, there are three indicators
telling us whether the economy is facing a bubble and I think all
three show that in China a bubble economy is emerging. The first is
the ratio of loans for real estate construction business to the total.
This has been significantly increasing recently.
The second is an indicator calculated by dividing house prices byincome. Though some IT companies can afford to buy housing evenat high prices with their growing revenues, people on average
incomes cannot buy real estate, as this indicator is growing too
much.
The third one is the ratio of the rate of increase in loans for realestate construction to the GDP growth rate, and this too has been
rising these past few years in China.
An additional challenge stemming from all this is the impact on
local governments’ public finances. The fiscal situation of local
Japan SPOTLIGHT • November / December 2023

7

Chinese governments has been in good health in spite of their small
tax revenues because they can gain further revenues by selling theirowned real estate. From now on, however, they will need income
from the central government to cope with the depression in realestate. This would negatively affect the whole nation’s publicfinances.
With regard to India, I think it could achieve robust growth if allgoes well. First, digitalization is making progress all over the nation.
Until several years ago, broadband networks were only available inlarge cities, but now the government is trying to introduce them tolocal regions.
Second, their local economies have started growing little by little
with such digitalization, realizing sales and promotion of a variety ofgoods and services through the Internet. And third, there are Indian
Institutes of Technology (IITs) in each region. These have produced
extremely talented engineers. There is an increasing number of highskilled human resources in India, and in this light, I think it would berather difficult for China to achieve total hegemony.

Asia-Wide Industrial Policy
Toyoda: There is a debate today about Asia-wide industrial policy orpolicies to strengthen the resilience of supply chains. According to
the White Paper, Japanese companies consider ASEAN5 or ASEAN6
the most important venues for their FDI and their expectation about
India is also rising. Meanwhile, their expectation about China seems
to be decreasing. At JEF, we have been collaborating with ERIA inworking on research on “Asia-wide industrial policy” since 2022 andfound these nations engaged in “Digitalization”, “Supporting startups” and “Decarbonization of the economy” extremely ambitious,and their policies would be useful for Japan to learn as well. Prof.
Urata, can we expect ASEAN or India to be a good partner for Japan,
and can they be considered a crucial part of a stable supply chain forJapan? What should Japan do to strengthen the resilience of supply
chains?
Urata: It is certainly true that India is becoming increasingly popular
as a destination for Japanese companies’ FDI. According to a survey
by the Japan Bank for International Cooperation (JBIC) of Japanesecompanies in summer 2022, the largest number of firms chose India
as the most promising destination for their FDI over the next three
years, while China was the second largest. The third was the US.
This means that although its attractiveness is less than before, China
is still considered one of the most promising destinations forJapanese FDI.
Among the top 10 nations in this survey, five ASEAN countries
were included. Vietnam was fourth, Thailand was fifth, Indonesia
sixth, Malaysia seventh and the Philippines eighth. We can see from
8 Japan SPOTLIGHT • November / December 2023

this survey that India and ASEAN are attractive venues for Japanesecompanies, and the main reason is their market’s growth potential.
Having participated in JEF-ERIA joint research as well, what
impressed me most was that ASEAN and India have made enormous
efforts to promote a digital economy. Digitalization of the financial
sector is also making progress in ASEAN. In starting up businesses,
they progressively use a digitalized financial sector for their funding.
Traditional financial institutions have not been very well developed inthese countries, and this has facilitated the creation of a new
business system and environment, contrary to what is commonly
believed.
It is also true that many ASEAN nations such as its founding
members like Indonesia, Malaysia, the Philippines, Singapore,
Thailand and one of the latecomers, Vietnam, have been integrated
into not only Japanese companies’ supply chains but also those ofmany other nations around the world. Unlike these ASEAN nations,India is not sufficiently involved in supply chains. One of the reasonsis that it still continues with protectionist policies. These delays inopening up trade while attracting FDI make for inconsistent policies,
and seem to make it difficult for India to be integrated into supply
chains.
To enhance the resilience of supply chains, I think technologicalsupport from Japanese subsidiaries for the host country’s
companies to improve their competency or human resource
development would be very important. The Japanese government’s
official development assistance (ODA) would also be helpful inachieving this objective.
Toyoda: What do you think about the future potential of ASEAN5 or
ASEAN6 and India in addition to China, Prof. Yoshino, as a former
president of the ADB Research Institute? India is not a member ofthe RCEP, so could this be negative for India’s competitiveness?
Yoshino: The Indian economy’s connection with the rest of the Asia
is becoming much stronger. In particular, relations between
Singapore and India have been greatly strengthened. There are threemain ethnic groups in Singapore – Indians, Malays and Chinese –and the Indian group is contributing to stronger ASEAN-India
relations. The people in this Indians group are competent inmathematics and are becoming prominent in the IT sector.
In the area of trade, since ancient times in Africa, Indians havebeen working on intermediary trade and this tradition is still
contributing to a variety of relations among Asia, Africa and India.
I believe that the keys to achieving closer relations between Japanand India or ASEAN in the future are in areas like SME finance,
infrastructure and telecommunications. Japanese SME finance orstart-up finance could be used in this regard. In particular, inselecting finance for SMEs in developing nations like India, the Credit

Risk Database (CRD) Association collects data and calculates theprobability of bankruptcy based on it and uses it to selectdestinations for finance. This business model of financing SMEs withhigh growth potential based on data analysis using a scoring model
supported by daily business data has been used uniquely by Japan.
The CRD Association has concluded an agreement with thePhilippines and now the Philippines has also started a scoring model
for financing SMEs. This Japanese method of SME data analysis
could be a kind of know-how for use across Asia, including India andSoutheast Asia.
On start-up finance, what we call crowd funding has begun inVietnam, the Philippines and Mongolia. Funding availability for startup businesses in the banking sector is particularly limited, so
encouraging their growth with crowd funding instead in local areas
would be one possible funding method to be used in India and
ASEAN.
Toyoda: India, ASEAN5 or ASEAN6 are nations of the Global Southand could strengthen their political influence in the world as a groupby maintaining neutrality in the confrontations between the US,
Europe and China, Russia. Prof. Watanabe, what do you think would
be the international political or economic implications of Japanesecompanies’ developing supply chains among Asian Global Southnations? Could Japan work as a bridge between the Global Southand the US and Europe?
Watanabe: For the past two decades, Japan has expanded its supply
chains of several industries such as textiles and electronics acrosscountries, creating jobs and benefiting both Japan and the hostnations. This success was due to stable trade rules, including
consistent tariffs and transaction regulations, even when production
moved overseas. For example, the electronics sector enjoys zero
tariffs. These trade practices have been highly beneficial for the
Global South, and extensive data analysis supports this. As theEuropean Union and Japan hold significant negotiating leverageagainst China and the US, they can enhance trade and investment
rules to ensure stability amid growing geopolitical risks. This canbenefit the Global South and is one way Japan can support Asian
economic growth.
It is also important for Japan to support the Global South nations
by making their industrial structure more progressive with higher
value-added. Specifically, with the rise of technology focusing on
digitalization, Japan should support these nations in this transition.
Additionally, policies should be implemented to promote a data
market after the initial push for digital technology. Currently, data is
dominated by platform giants like Google and Microsoft. By
establishing a data market, small and medium-sized enterprises(SMEs) can access the data they need. The World Development

Report 2021 by the World Bank emphasized the significance of dataand its governing institutions for everyone’s better livelihood. The
report highlighted the nature of data as goods, and that its value isrealized only through use, making it hard to treat like typical market
goods. This uniqueness, combined with its non-standardized nature,suggests that establishing a data market is challenging.
However, China is attempting just that. A major focus of China’s
14th Five-Year Economic Policy Plan in 2021 was to develop a data
market. The Chinese Communist Party aims to disrupt datamonopolies held by tech giants like Alibaba and Tencent, enabling
SMEs to access this data. Their approach involves setting data
standards and evaluating data based on these standards, hoping this
could lead to manageable pricing. If successful, China’s standards
might become the global norm for data transactions.
Introducing a workable set-up for a data market would greatly
benefit ASEAN SMEs, using these standards as a valuable reference.
Therefore, as digitalization surges, we need a policy framework
guiding its rules. This would be advantageous for both Japan and the
Global South.
Toyoda: Wouldn’t encouraging data distribution contradict
protection of private information? Developed nations, in particular
Japan, tend to be very concerned about privacy protection, which
does seem to discourage data distribution.
Watanabe: In China, the framework for the protection of personal
data is now well-established. The effectiveness of this system hinges
on the enforcement of various laws. Transferring data from China toanother country requires strict adherence to privacy protection, withlegal penalties for non-compliance. The Chinese public’s awarenessof this issue has significantly increased, making it nearly impossible
to conduct data transactions without privacy safeguards. In my
opinion, the overall structure of privacy protection in China iscomparable to that of developed countries now, except for the
inappropriately wide range of potential state intervention. This
exception would become a focus of tension between someauthoritarian countries including China and countries underdemocracy and constitutions.

Final Remarks
Toyoda: Could all of you please give us your final remarks on themain theme of raising the Asian economy’s sustainability indevelopment? If possible, any remarks on the CPTPP would beappreciated.
Yoshino: Japanese companies or research institutes should now
purchase a wide range of data on finance for their analysis. They
Japan SPOTLIGHT • November / December 2023

9

have to buy software for analysis from other countries. Japan seems
to be considerably behind the rest of the world in the area of dataand software for analysis. However, as I have said, in the area offinance for SMEs I believe that we Japanese can support India and
ASEAN in the analytical methods for a host country’s business data.
The aging population in Asia provides another main stream of
economic development. South Korea, Thailand and Vietnam are all
moving towards aging societies, as well as Japan. If Japan canpromote development of robots and other tools to help elderly
people continue to work, these products would become a large
Japanese exporting industry to India and ASEAN.
Japan can also continue to support India and ASEAN in
accommodation of telecommunication infrastructures. It is only
Japan that provides training for the engineers working on
maintenance and repair of these infrastructures in addition to
support for their construction. High-quality infrastructuredevelopment, particularly in the field of nationwide
telecommunication networks, would make it possible for India and
ASEAN to achieve sustainable growth. With Japan’s support for
telecommunications, farmers could sell their food products throughthe Internet and with developed transportation infrastructures thesmooth movement of goods and people could be achieved. So I
believe that people living in local areas in India and ASEAN will
become richer and this would lead to political stability and enable
governments to achieve long-term economic policies.
Watanabe: Japan should confidently voice its concerns to China.
While smaller countries might not be able to do so, Japan has thecapacity to both challenge and address unilateral actions byauthoritarian nations that act non-cooperatively. It’s vital for Japan to
defend and enhance the international order. Japan should nothesitate to invest time and effort into this crucial role. The EU andJapan stand in a similar position in terms of relations with China andthe US. Europeans are more experienced in the prevailing rules, but
their knowledge about China is perhaps limited and they are not as
close as Japan to the geopolitics of Asia. So I think Japan has to act
to maintain a rules-based international order while considering
effective ways to speak to China.
Both the EU and Japan have comparable stances concerning theirrelations with China and the US. While Europeans might have a
deeper understanding of the prevailing rules, their knowledge about
China and proximity to Asian geopolitics might not match Japan’s.
Therefore, Japan should lead in upholding a rules-based international
order and find effective ways to communicate with China.
Regarding the treated wastewater from the Fukushima nuclear
plant, China appears to be using it as a tool for economic coercion.
Japan should explicitly state that China isn’t adhering to the rules inthis matter. China is responsible to show the scientific evidence on
10 Japan SPOTLIGHT • November / December 2023

the (potential) contamination of marine products if it would ban on
importing Japanese marine products. Japan should swiftly address
this infringement. By outlining what’'s permissible underinternational standards, Japan needs to demonstrate its commitment
to voicing concerns about such issues consistently.
Urata: India-Japan relations are not very well developed compared to
ASEAN-Japan. In order to make relations with both India and ASEAN
mutually beneficial, Japan must help these nations, mostly in “themiddle-income trap”, to become high-income nations with enhanced
competitiveness or productivity. Specifically, they need humanresource development and improvement of institutions such as legal
and education systems. Japan can contribute to their development inthis regard. Japan should do it with like-minded nations such as the
US, Australia, Singapore and European countries.
On the issue of human resource development, we should increase
the number of students coming from India to Japan, since there are
only around 500 currently, compared to many more from Nepal.
There are also few students from Japan going to India. I think thatdeepening the relations between Indian and Japanese universities
would contribute to the further progress of the bilateral relations.
On the question of FTAs, the RCEP and CPTPP have now been
ratified by all the member countries and are functioning. I think it
important to monitor them to see whether each member nation’scommitments are being fully implemented and the accepted rules arebeing followed. To achieve these objectives, FTAs’ secretariats play
an effective role. I would like Japan to take more positive action toestablish these secretariats as a country that made a great
contribution to the conclusion of the agreements. The economic
benefits of these FTAs will increase as the number of member
nations grows, and Japan should play an active role in expanding
their membership.
Toyoda: Japan’s relations with ASEAN and India are very important,as well as relations with China. We should spare no effort to create aworld that benefits Japan and all Asian nations.

Written and translated by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT,
with the cooperation of Tape Rewrite Co.

COVER STORY • 1

Roundtable with Amitabh Kant, Prof. Shujiro Urata, Prof. Yukiko Fukagawa & Masakazu Toyoda(Jan. 18, 2024)

I

ndia – the Future of a Powerful
Country

By Japan SPOTLIGHT
Participants

Amitabh Kant

Prof. Shujiro Urata

Introduction by Masakazu Toyoda, Chairmanof JEF
According to estimates by the United Nations Economic Office,India’s population reached 1.43 billion by the end of April last year,
making it the most populous country in the world. On the economic
front, India is expected to overtake Japan in terms of GDP in the late
2020s to become the third-largest country in the world. If theChinese economy stalls and fails to overtake the United States, India
could well become the second-largest economy in the world by
2050. On the management side, India has a wealth of humanresources, and among GAFAM members, the CEOs of Microsoft and
Google, as well as the chairman of Kameda Seika in Japan, are from
India.
India also has a strong presence on the international politicalscene as a leading member of the Global South amid the deepening
division between G7 countries and China and Russia. While holding
the presidency of the G20, India surprised the world in September
2023 when it reached a summit declaration on the afternoon of thefirst day of the meeting, which was expected to be difficult to agree
upon. India also made its presence felt at COP28 in 2023.
Furthermore, on the scientific front, India became the fourthcountry in the world to successfully land unmanned on the moon in
August 2023, beating Japan, and is likely to become a significant
player in the space business. On the cultural front, India is famous
for its movie industry. Personally, I love Indian movies and often
watch them on airplanes.
I have been wondering why India did not join the RCEP while
https://www.jef.or.jp/journal/

Prof. Yukiko Fukagawa

Masakazu Toyoda

concluding free trade agreements with Australia and the UAE. It is
unfortunate that India’s complicated regulations and underdeveloped
infrastructure are factors that make foreign companies, including
Japanese companies, cautious about investing in India at the
moment, even though it is one of the most promising investment
destinations.
Today, three experts will gather to discuss the future of India, agreat power full of contradictions. The first is Mr. Amitabh Kant,
sherpa of the G20. Until recently, he was the CEO of NITI Aayog, agovernment think tank established at the initiative of Prime Minister
Narendra Modi to promote structural economic reforms. The second
is Shujiro Urata, professor emeritus of Waseda University, who iswell versed in international economic issues. The third is Prof.
Yukiko Fukagawa of the School of Political Science and Economics at
Waseda University, who is an expert on Asian economies.
First, I would like to ask Mr. Kant. India’s recent growth has beenremarkable. Since 2014, the growth has been averaging around 6%.
The latest World Bank report released in October last year projects agrowth rate of 6.3% for both 2023 and 2024. This is the highest
growth rate among the G20 countries, and 1-2% higher than that ofChina. The reasons for this are said to be population growth(demographic bonus), progress in deregulation, and digitalization.
What do you think is the main reason?

Macroeconomic Development – Reforms to
Encourage Growth
Kant: Thank you, Toyoda-san. Last year we grew at 7.3% and in theJapan SPOTLIGHT • March / April 202411

current year we are projected to grow at 7.2% in 2023, and in 2024.
This is far higher than any large economy in the world and higher
than any estimates made by international organizations. This is the
cumulative effect of a wide variety of steps taken by the government
since 2014, firstly wide-ranging economic reforms. The goods andservices tax was implemented all over the country – it’s like having
one tax across all of Europe; the corporate tax rate was reduced tointernational levels, and sectors for foreign direct investment wereopened up – almost 98% of FDI now comes in through automaticroutes. A new bankruptcy law, modern regulations for real estate,removal of retrospective taxation, commercial exploration andmining, and codification of labor laws are among the long list of
economic reforms which India has undertaken. Production reforms
have also been introduced to bring size and scale to manufacturing
in India.
Secondly, digitization. Today more than 11 billion transactions
take place digitally every month in India. We are transferring
government benefits directly into the accounts of people and we do
FAST payments which account for 46% of the real-time FAST
payments in the world. Entire government processes anddepartments have gone fully online. India’s digital public
infrastructure has delivered ease of doing business and ease ofliving. Thirdly, innovation and entrepreneurship. The start-up
movement in India has seen India become one of the largest start-up
ecosystems in the world and in 2016 we were close to 400 start-ups,
but today we have more than 110,000 and are creating new businessmodels and disrupting traditional sectors.
Lastly, a trust in infrastructure investment is creating a worldclass multimodal transport network in India, moving goods andpeople. Leveraging GIS, an overarching masterplan has been createdto guide investments. Since 2014 government expenditure as apercentage of GDP has doubled from 1.7% to 3.4%. These
investments are lowering the costs of logistics and enhancing ourcompetitiveness. So, this is the broad perspective in response to
your question.
Toyoda: Very impressive, thank you very much. Dr. Fukagawa, you
are familiar with Asian economies such as India and China. What do
you think are the characteristics of India’s growth compared toChina? What do you think are the advantages and disadvantages
from the viewpoint of promoting investment by foreign companies,
including Japanese companies?
Fukagawa: As one who has been observing Chinese economic
development for decades, I think there are lots of differences, but thefirst one is that after all China remains the biggest so-called “EastAsian economy” that has been committed to manufacturing andexport-oriented developments. India is wholly different in this path.
The second thing is that of course China and India are big
geographic countries so there is always the relationship between the
12 Japan SPOTLIGHT • March / April 2024

city areas and their other regional areas. As far as I know, India has
made big progress in utilizing GST, the tax that used to be very
different between provinces and states, and that has resulted in hugeprogress in terms of transaction costs for businesses in India. China
did not have this kind of problem because it is far morehomogeneous in terms of structures. What is interesting about
China’s early development is that the Chinese provinces arecompeting with each other very fiercely, trying to improve theirbusiness climate and attract more FDI, and trying to boost exports
desperately. At the same time, the provinces were learning from eachother very rapidly. As a result, as a whole the Chinese investment
climate had become more standardized, but in India there seems to
be still lacking this sense of competition. Some states are doing very
well like Mumbai or Gujarat, but some stagnating states still exist
and so from a foreign investors point of view it is very hard to
imagine India as an integrated whole big market and that’s probably
one of the big differences.
The other thing is the expectation of India’s demographic bonus
and that is very different from China which has already started to see
the decline of its population. In order to enjoy a demographic bonus
fully, I think we need three things. We need a young population, butalso the labor participation ratio is important. Even though you havesuch a large number of young people, they are not guaranteed jobs.
The third is labor productivity and in terms of the demographic
dividend India should be more interested in investing heavily in
education and also trying to be more focused on job creation,
because China did enjoy this demographic dividend as its
competitive advantage was in its labor-intensive manufacturingindustries. So I think India is full of potential but we need some veryclear priorities and sequencing of industrial policies.
Toyoda: Thank you for your interesting comparison between the twocountries. Let me next ask Prof. Urata, who looks at the world
economy as a whole. The challenge for India is said to be the large
gap between the rich and the poor. The savings rate is low and there
is no virtuous cycle of high savings and high investment. Whatshould be done to overcome this problem?
Urata: Yes, the low savings rate is a problem for India and there areseveral reasons for this; one is, as you mentioned, income inequality.
The savings rate is lower for low-income households compared tohigh-income households so the increasing income gap in the form of
increasing low-income households will lead to lowering the savings
rate. But I think there are other factors which also led to a decline in
the savings rate. I understand that this is a very serious issue which
India is now facing and I have read some articles about this issue.
These other factors include pent-up demand from the Covid-19
pandemic. Pent-up demand led to active consumption not only by
low-income households but also by high-income households.
Inflation also encouraged households to spend before prices ofproducts went up and low interest rates encourage households toborrow from financial institutions to spend. All of these and maybe
some other factors too contributed to increasing consumption andlowering the savings rate.
Also, active government spending, which resulted in a fiscal
deficit, contributes to the low gross savings of the country.
Investment plays an important role in promoting economic growthand domestic savings are a major source of funds for investment,
and therefore a low gross savings rate is a problem in terms ofachieving sustainable economic growth. To increase gross savings,
it is important to deal with the problems I mentioned. Lowering the
inflation rate is a big challenge and reducing the income gap orincome inequality is another challenge. How can India reduce income
inequality? I echo what Fukagawa-san mentioned – education ortraining should be given to people from low-income households as
this could increase their income and in turn contribute to increasing
the savings rate. Also, labor mobility. Mr. Kant talked aboutreforming the labor market and perhaps this has already been done,
but I think it is very important to make a more flexible and mobilelabor market so that people can switch their jobs from lowproductivity ones to high-productivity ones. Finally, reducing thegovernment deficit is important for India to increase its grosssavings.

expand.
My view is that, as the Bank of International Settlements has said,
India has achieved in nine years what it would have normally taken
47 years to achieve. I really feel that this focus on infrastructure
which the government has made the private sector investment in will
accelerate in the coming months and investment rates will rise, andwhat you will see is the private debt to GDP ratio growing. Thebalance sheet of the private sector is in a very good condition. All thecompanies are making good profits and the bank balance sheets
could not be better. They are in excellent health and my view is thatprivate investment will accelerate in a very big way. The government
has opened up the FDI regime in a very big way and you will see FDI
growing and expanding in the coming years.
The issue about India being a large state is correct, and therefore
growth with equity is important. It can’t be that some states growwhile other states do not, and it’s very important that all statesshould accelerate the pace of growth. The southern part of India andthe western part of India are growing but the eastern part of India
needs to grow rapidly. And some states like Odisha have done very
well in recent times and are a beacon of hope, and I am sure that in
the coming years they will further accelerate the pace of growth.

Toyoda: Mr. Kant, could you please comment on Prof. Fukagawa’sand Prof. Urata’s comments, and if you have any objections or points
you would like to add, please do so.

Toyoda: I would now like to ask Mr. Kant about trade policy. India
has decided not to join the RCEP, although it has been participatingin negotiations with great enthusiasm. Bilateral free trade
agreements have been concluded with Japan, Australia, the UAE, andother countries. Many people wonder why India did not join the
RCEP. For India, too, people think the growing markets of the AsiaPacific are important. Many may have been afraid of a flood ofimports from China. In that case, the TPP without China may be agood thing for India. What do you think?

Kant: These are all very valid comments and I want to respond tosome of them. One is that during the last eight or nine years thegovernment has laid a lot of stress on infrastructure and it has
focused on providing essential services to the citizens of India. It has
built close to 40 million houses in the last nine years, and that’smore than the population of Australia. It has also provided about 110
million toilets to its citizens. It has provided piped water connections
to 53 million Indians, and also built about 88,000 kilometers ofroads. It also came out with a new educational policy focusing on
improving learning for children and it has focused on providing
insurance to 500 million Indians, and all of it is cashless so you canmove to any part of India and carry your insurance with you.
What will drive growth in the coming years in India will be theextent of digitization. Every Indian citizen has a digital identity andevery Indian has a bank account. Between 2015 and 2023 we opened
500 million bank accounts. We then linked up bank accounts todigital identities and mobile numbers, and we have over a billion
mobile phones, so everyone does digital transactions on mobiles and
we do 46% of the real-time FAST payments in the world. We areusing this model of digital public infrastructure to provide education
to spread wealth in many other areas, so we are technologicallyleapfrogging in many of these areas, and we will rapidly grow andIndia’s Trade Policy Key to Further Success

Kant: So my belief is that we have signed these bilateral free trade
agreements because we found them to be mutually beneficial. Thisshows that India is not averse to free trade and on the contrary ourgoal is to better integrate ourselves in global value chains. We arestrong believers in free trade, but the economic environment inwhich the RCEP negotiations started and then concluded are very
different. We pulled out of the RCEP because Indians’ concerns were
not being fully addressed. This was a decision guided by pragmatism
rather than idealism. Close to 43% of our labor force is still inagriculture and furthermore millions of enterprises are still microenterprises with much room to grow. We wanted to safeguard theinterests of the millions of our small and medium-sized enterprises(SMEs) and farmers, and any trade agreement with a bilateralregional or multilateral focus must ensure that the interests of all
countries are being met. Each country has national priorities andthose priorities cannot be compromised. We are great believers inJapan SPOTLIGHT • March / April 202413

free trade and we strongly believe that free trade helps to lift people
above the poverty line; free trade enables growth and poverty
elimination but trade agreements must be mutually beneficial, and to
our mind the RCEP was not beneficial to India. The CPTPP we are
examining and we feel it can be a win-win for everyone, including
India.
Toyoda: India did not join the RCEP because it is said to beconcerned about agriculture and SMEs that would be affected by free
trade. There was a time when Japan had similar concerns about
agriculture and some SMEs. Prof. Urata, how do you think Japan
overcame those concerns and is now leading the way to the CPTPP?
Do you have any advice for India?
Urata: This is a difficult and sensitive question. Japan’s policy for
non-competitive sectors like agriculture and SMEs in my view has
been a combination of protection and promotion. As for the
agricultural sector, the five sacred agricultural products are rice,wheat, beef and pork, dairy products and sugar. These fiveagricultural products were excluded from liberalization in any ETA/FTAs that Japan has concluded. As for negotiations in the RCEP and
TPP, as you know Japan was able also to exclude these products
from liberalization. That is how Japan “overcame” this difficult
problem, but in my view, this is not a very good way to deal with the
problem that these sectors are faced with.
What I think we should have done is to commit to tradeliberalization on a gradual basis over time, but what Japan did was to
exclude them and that means no liberalization at all for some time tocome. But I think we should commit ourselves to liberalizing thetrade regime in these sensitive sectors over time, while acceptingthat the government may provide some assistance to them to reduce
adjustment costs in dealing with unemployment problems andproblems which may be reflected in the loss of industry in somerural areas, and so on.
Turning to SMEs, the difference between government policy
towards agriculture and SMEs is very clear. In my view, SMEs are
not protected by high tariffs but they are given assistance in terms ofgetting low interest-rate loans from public institutions and somekinds of subsidies to improve their technology. These are so-called
promotion policies and SMEs are not given protection by trade
policies. Having said that, I would like to recommend India tocommit to gradual trade liberalization, although I know it is very
difficult, particularly politically, but I think it is important to liberalize
over time and during this process reforms should be conducted andimplemented so that in the future these sectors become morecompetitive.
Toyoda: Are you suggesting that India should have some
exclusions?

Urata: No, exclusion is something that Japan should not have done.
Japan should have committed itself to liberalizing the sectors overtime, not right away but gradually.
Toyoda: Prof. Fukagawa, China is enthusiastic about the RCEP. Whyis this a difference between India and China? I think India needs toincrease the level of market openness in order to succeed in its“Make in India” policy. What do you think? Can India really become asuperpower if it remains cautious about free trade or competition?
Fukagawa: That’s another difficult question. There is a kind ofimpression in the last five years or so that India is rather going in the
opposite direction, although as Mr. Kant emphasized, India is more
for free trade but actually we have seen an import licensing system
for automobile tires, color TVs, air-conditioners and many chemicals
or even solar power generation facilities. So we can understand thatIndia is behind China in regard to trade liberalization, even though
the RCEP of which China is a leading member is not a very highstandard of liberalization. Also, if you look at India’s huge trade
deficit with China in terms of goods traded, you will see that Indianindustries are less competitive than Chinese ones. In light of this, I
guess it would be very difficult to gain a trade surplus just withindustrial policies that try to encourage exports with subsidies.
Japan used to be quite similar in terms of agriculture but as waspointed out, the CPTPP was a great opportunity for Japan to be more
serious about agricultural reforms. We have been doing a lot ofreforms about land expropriations of farm areas in Japan and werestructured the land and now have more younger people going into
agricultural businesses. So we definitely need some market pressure
if we are to make reforms, and that’s one thing. The other thing I
would like to counter with regard to India’s integration policy is yourinitiative about the service sector. I know that after introducing the
public identification system, India is pursuing a very interestingsocial experiment in trying to upgrade its huge public services, as
partly pointed out by Mr. Kant. So if this is the situation, I think India
has a huge comparative advantage in various services, including ICT,and so if the RCEP doesn’t look very realistic, then why doesn’t India
participate in the DEPA Agreement first and try to participate in rulemaking on data movement or data technologies, and then it may
have a great opportunity to take the initiative based on its own
experiences. This should be very much appreciated by latecomer
Asian countries which are inferior in terms of competitiveness in theservice industries, as opposed to their super competitive hardware
manufacturing.
Toyoda: Maybe the key ideas here are gradual liberalization andgovernment assistance if necessary, and thirdly service sector
competitiveness. Mr. Kant, do you have some comments on this?
Kant: Some very relevant suggestions have been made and I greatly

14 Japan SPOTLIGHT • March / April 2024

appreciate them because I’m a great believer in free trade and I
believe that it’s not possible for any country to grow at a higher rateover a three-decade period without trade. Exports have to be the key
driver of growth. The challenge with the RCEP was that there wasvery little giveaway on the services sector where India has its
strength and no one wanted to compromise on the services sector,
but they wanted India to compromise on every other sector, and thiswas becoming very difficult for India. But India is not closed to the
RCEP at all and will at an appropriate time consider this proposal
anew. I believe that as we move forward with many of our bilateral
FTAs, India will look at this issue from a different perspective, butthat will be a question of the agreement being mutually beneficial.

South. That is our perspective. We will continue to work in theinterest of global economies and will continue to work in the interestof the Global South. The important thing to realize is that 80% of
growth now is coming from emerging markets and two-thirds of thegrowth in the next three decades will come from emerging markets,and the Global South will continue to play a critical role in the global
economy.

India’s Foreign Policy as a Leader of the
Global SouthFukagawa: India has been in a close relationship with Russia interms of security and has been importing lots of weapons from
Russia due to the potential tensions with China probably, so we canunderstand the position of India. However, we still expect India to bea country of the rule of law and a country of democracy and so insuch terms I think one of the things we need to do is to make India amore efficient country in terms of energy, as well as food selfsufficiency. As Mr. Kant pointed out, India has been chronicallypressured on inflation both by energy resource price hikes and foodprice hikes, and that is why India recently introduced controls onsome exports. However, we all know that India has huge room toimprove its efficiencies in these two sectors, so if we can cooperate
it should create a very nice partnership with Japan. And since we area resource-poor country, we have been making great efforts to makeelectricity transmission as efficient as possible, so this could be agood partnership between us while we try to enhance our ties intimes of geopolitical insecurity.

Toyoda: Turning now to foreign policy. Against the background ofrising geopolitical risks such as the US-China confrontation, theUkraine crisis, and the Gaza crisis, India’s role as a mediator between
the G7 and China/Russia as a leading player in the Global South iscoming under scrutiny. Will India take a different position from its
traditional nonalignment policy? On the other hand, India isparticipating in the Quad and the Indo-Pacific Economic Framework(IPEF), which are being promoted from the perspective of economic
security, but the concept of improved market access is not included.
What is the attraction for India?
Kant: Our position on the various geopolitical risks has been quite
clear and raised in the appropriate forum of the United Nations. We
have taken a pragmatic stance in view of these crises and we haveseen how the destruction of global value chains has impacted theglobal economy. Inflation disruption in industries was just one of theeffects of the pandemic that showed us that supply chains need to beresilient and diversified.
The IPEF for prosperity provides members with flexibility and they
are not required to be signatories to all four pillars of the IPEF. India
has recently signed on to the supply chain resilience agreement of
the IPEF. India is open to the world and wants to integrate itself into
global value chains. Signing up for this pillar of the IPEF provides us
with this opportunity. In the same way, India also signed on to theIndia-Middle East-Europe Economic Corridor during the G20 leaders’summit in New Delhi. We seek to establish ourselves as a reliable
and trusted trading partner.
India’s membership of multilateral forums also allows us tochampion the concerns of the Global South. For instance, we havehosted the Global South Summit which informed the priorities of ourG20 presidency. The inclusion of the African Union into the G20 and
our ability to achieve a full consensus at the G20 on all issues is atestament to our commitment through membership of suchgroupings. We will continue to champion the needs of the Global

Toyoda: I would like to ask Prof. Fukugawa the same question. The
Ukraine crisis is clearly a violation of the UN Charter by Russia. How
would you evaluate India’s refusal to participate in economic
sanctions against Russia?

Toyoda: Japan is emphasizing cooperation with the Quad, IPEF, andother organizations amid the intensifying US-China confrontation. To
ensure economic security, I think it is important for Japan to be
involved in the region. Prof. Urata, how would you evaluate India’s
participation with regard to ensuring economic security?
Urata: I think India’s participation in the Quad and IPEF is very
important in dealing with China’s rapid rise in the international arenaand its very aggressive regional foreign policy. India and Japan sharecommon values such as democracy, human rights, freedom ofspeech, and so on. Because of that, I would like to see India play aconstructive role as it has been playing in maintaining this positionand protecting the international order which China is threatening tochange. I would like to see India lead the group of developing
countries in the so-called Global South to achieve this objective of
maintaining and protecting the international order and I am very
pleased to hear Mr. Kant talk about this. I think I echo what Mr. Kant
was saying about the role that India has been playing on occasions
such as the G20 in 2023. Considering the higher growth of the Indian
Japan SPOTLIGHT • March / April 2024

15

economy and its higher position in the world economy, I would
reiterate that I would like to see India continue to play this very
important role more actively.
Toyoda: I think the keyword here is the stability of supply chains. Mr.
Kant, please provide any objections or supplementary comments on
this matter as well.
Kant: My only comment is that we are in the midst of geopoliticalchallenges such as the Ukraine crisis and the crisis in Syria and the
Middle East, and it is very important that we try to steer
developments. The challenge before the global economy isaccelerating the pace of growth and if we don’t, then sustainable
development goals will be hindered. The world needs strong,
inclusive, sustainable growth. Almost 75% of countries are facing adebt crisis, and almost one-third of the world is in recession:Germany has gone into a technical recession and so therefore in the
midst of these crisis it is very important the countries like Japan andIndia, which share common values and work together on several
platforms, need to promote sanity. We need to drive rationality andtrade, we need to drive prosperity, and we need to work for the
citizens of the world. And therefore it’s very important that we should
bring issues like SDGs and global growth and climate action tocenter stage, rather than getting caught in these present crises which
are confronting the world.

India’s Role in Climate Change
Toyoda: We should discuss such potential cooperation between
Japan and India further, but before that let me turn to other issues
such as climate change. At COP26 in Glasgow in 2021, there wasagreement on “diminishing” rather than “abolishing” coal-fired
power generation, as proposed by India. In response to this, some
said it is a representation of the position of developing countries,
while others are critical of India for delaying action on climatechange. What do you think?
Urata: As you point out, I think there are two different views on
India’s position on this issue. One is to support India’s position as it
is a realistic approach considering the capability of developing
countries in dealing with the reduction of coal-fired power generation
while achieving economic growth. On the other hand, one cancriticize India’s position for a lack of interest or eagerness to deal
with climate change issues or environmental problems, as priorities
are given to economic growth. I understand both views but I am
closer to the second view, and if I may say so, considering theenvironmental problems from a global perspective, India or any
other country should accept lower economic growth to deal with theenvironmental problems. Such an approach would eventually enable
the world to achieve high economic growth in the long run and it
16 Japan SPOTLIGHT • March / April 2024

would be productive if India could, for instance, identify theconditions which need to be satisfied in order to achieve carbon
neutrality by 2050. And then India may come up with measures suchas importing technology or borrowing funds from developed
countries to achieve these objectives, and so I’m curious to know ifsuch an exercise or such a view has been presented or not.
Toyoda: Prof. Fukugawa, the “bad guy” of climate change measures
is “CO2 and methane emissions”, and if fossil fuels aredecarbonized, then it is fine to use them. How do you view theposition of India and other Asian countries which support theposition of India with regard to climate change?
Fukagawa: Regarding the point that Prof. Urata has made, India
should be aware of the need for tackling climate change, including
the threats to agriculture as well as air pollution. One thing India may
be able to bargain with is a commitment to more ambitious CO2
reductions while at the same time trying to use leapfrogging
technologies to attract ESG investment, including in energy-related
business such as renewable energy or sophisticated powergeneration technologies. These will probably require a better
relationship with the US rather than with Russia or maybe perhaps
with European nations. So, I still think India has a lot of room tomaneuver and a huge scope to contribute to the future.
Toyoda: Mr. Kant, please give us your own views on India’s position
on climate change. At COP28, the “abolition” of fossil fuels was
discussed and it was agreed to “transition away” from fossil fuels.
What is your assessment of COP28? Also, India has set 2070 as theyear for achieving carbon neutrality, but is it possible to accelerate
the process?
Kant: First of all let me say that India’s position has been absolutely
clear. We are not responsible for climate change. It is the developed
world that has contributed most to historical emissions. All of the
carbon space has been occupied at 1.5° C and out of the 2,800
gigatons of CO2 emissions 2,400 has been occupied by thedeveloped world. In terms of per capita emissions, India only
accounts for 1.5%, where logically it should have been entitled to17.5% of the carbon space.
The principle of common but shared responsibilities which was
accepted in Paris at COP21 must be respected. Irrespective of that,India is the country which has taken the lead. It is the only G20
country which has achieved its targets nine years ahead of schedule.
We achieved 174.53 gigawatts in February 2023 in total renewableenergy facilities, the fourth-largest amount in the world. The link
between energy security and development is well established anddevelopment necessitates prioritizing economic growth, poverty
reduction and job creation.
At the same time, we have set ambitious climate goals and we arenot abdicating our responsibility. As I said, we achieved our firsttargets under the Paris Accord nine years ahead of schedule and now
we have even more ambitious targets, so that 50% of our electricand storage capacity will be from renewable resources by 2030.
We’re also making a huge push towards green hydrogen to
decarbonize. My own view on COP28 is that it recognizes thephasing out of inefficient fossil fuel subsidies and a phase down ofcoal power. The language keeps the 1.5° C goal intact while allowing
developing countries the space they need to develop.
It’s important that without increased ambition on climate financeand technology transfer, the world’s collective goals face a very realrisk of failure and the developed world will need to provide increased
allocations to the developing world. Assuming that the developed
nations cannot have much room for carbon emissions, they should
be willing to transfer technology, or provide finances for developing
countries to develop technology for environmental protection. Yet
they continue to use fossil fuels and try to impose sanctions on
developing countries for doing the same.
Therefore, our stance has been that these ambitious goals arecontingent on climate finance flows and technology transfer – frombillions to trillions was one of the key outcomes of the G20 summit. I
think it is possible to be more ambitious but the developed worldmust advance its net zero goals before ensuring that otherdeveloping countries advance their goals. Without developed
countries taking the lead in advancing, then zero goals will not be
possible. And greater ambition among developing countries has tobe matched with greater action by developed countries in the realmof both finance and technology transfer. Developing countries mustbe supported in this transition.

India’s Contribution to Science & Culture
Toyoda: That’s very clear. I think developed countries are asking
India to accelerate the process of carbon neutrality. In that case, they
may have to accelerate their own efforts to make it possible toachieve that, for instance by 2040.
The last issue I would like to look at is science and culture. Dr.
Fukagawa, as mentioned at the beginning of this roundtablediscussion, India has excellent scientific knowledge and an
outstanding cultural heritage. How would you evaluate India’s
activities and contributions in terms of science and culture?
Fukagawa: One day when I was walking in Cambridge, a scientist
from India said to me that India is idealizing Japan and I wondered
what he was talking about. But he said that Japan is the only country
that has been producing Nobel Prize winners based on their own
language, and that is what India wishes to do. So maybe we will havea Hindi-based Nobel Prize winner in the future. We have a large
interface with Western cultures and Western intellectual assets, butnevertheless we wish to have some alternative approach towards

humanity’s problems. So I think that Indian education is going to becontributing a lot, especially in basic research, which is supposed toprovide a public good not only in Asia but also globally. So that’s
why I was emphasizing the roles of digital-based technologies. Of
course, India needs to make some progress in terms of hardware but
one of the basic strengths of India is to provide excellent humanresources to lead in software, rather than hardware based on
hardware manufacturing.
Toyoda: Dr. Urata, until now, I feel that the world has been driven byWestern-centric values. In addition to China, I feel that India’s
activities are changing the world’s view of Asia. What is yourevaluation of India, which is said to be the world’s largest
democracy?
Urata: Yes, both India and China recognize that they have so-called
major civilizations, in addition to, say, Egypt. Given that India andChina had these major civilizations, what we are observing now is arenaissance. This is not so surprising and it is quite natural that therise of these countries has a huge impact on the world in many
respects, including economics and politics. They both have big
populations, high economic growth, and importance in regional andglobal affairs, but there are some differences. One big difference isthe one that Toyoda-san mentioned, namely political systems –democracy in India and authoritarianism in China. Japan, being a
democratic country would like India to maintain democracy and leadother countries towards democracy. According to some studies by
research institutes in Sweden or Finland, the number of democratic
countries is declining, and I would like to see India and of course
Japan play an important role in maintaining democracy in the world.
Toyoda: In addition to India’s success in scientific and cultural fields,
there are many people of Indian origin serving as CEOs of worldrenowned companies. Yet while India has cutting-edge science and afascinating culture, discrimination based on gender and status seemto remain. Mr. Kant, what are your thoughts on these issues? Are
you trying to change such social constraints?
Kant: More than half of India’s population is now composed ofwomen and the prime minister has focused on this in a very big way
himself. We have opened hundreds of millions of bank accounts toensure financial inclusion and between 2015 and 2023 we opened
over 500 million bank accounts, over half in the name of women, andover 69% of all micro loans have been to women entrepreneurs,
numbering approximately 35 million. We are creating an ecosystem
where women are not just seen as the beneficiaries of government
schemes but seen as leading development. The focus of thegovernment has been to ensure that everybody has equal access tothe benefits of development. Through a combination of governancereforms and leveraging technology we have been able to better target
Japan SPOTLIGHT • March / April 202417

beneficiaries for government schemes. By ensuring better access,we are empowering the marginalized to chart their own destinies andthe focus is clearly on youth and on women in a very big way.

Future of India-Japan Cooperation
Toyoda: That is very interesting. Finally, I’d like to turn to thecooperation between India and Japan. The relationship between
Japan and India is very close and friendly. How do you evaluate thecurrent situation and what kind of cooperation do you think should
be promoted in the future? Please give your frank opinions on
economics, trade, diplomacy, climate change, and so forth.
Kant: Japan and India are natural partners. We have seen success inthe automobile sector through the partnership between Maruti and
Suzuki, and the role of JICA in building India’s Metro systems, alongwith our country’s partnership in the Mumbai high-speed rail project.
Many of the Delhi/Mumbai industrial corridor development projects
also reflect our close ties. Also in the dedicated free trade corridor,
Japan is one of the largest foreign investors in India and ties have
only gotten stronger.
India’s presidency of the G20 coincided with Japan’s presidency of
the G7 and I worked very closely with my counterparts in Japan
during this time, as India was an invitee to the G7 as well. The twoprime ministers have met on several occasions in India and Japan,
both bilaterally and as part of multilateral summits. They both want
to see the relationship grow. Firstly, bilateral trade between the twocountries totals about $21 billion per annum, being the third-largest
and the fifth-largest economies in the world. This level of trading is
not reflective of our positions in the global economy. We must bothleverage our strengths to build a mutually beneficial and balanced
trade relationship. India’s potential in food processing,
pharmaceuticals and garments sectors can be further utilized, andwe cooperate on sanitary and other non-tariff barriers in the foodprocessing field.
We have a lot that we can learn from Japan in these areas. In
return, India can serve as a reliable trading partner and we must also
continue our cooperation on climate change and energy transition.
With an aging workforce in Japan and a demographic dividend in
India, there is room for cooperation between the two nations onlabor and orderly migration. Indian students are keen to study inJapan and Japan must encourage them and allow them to work for a
few years, given the language requirements. You must become moreof an open economy for Indians in both countries, who need to work
together to grow and advance together. Thank you very much.
Fukagawa: Of course, I think we have a great potential for further
cooperation in various projects and business activities, and as was
mentioned we already have the good example of automobiles andsubways. But probably in the next phase we are going to share
18 Japan SPOTLIGHT • March / April 2024

something that should benefit our societies; we have been suffering,for instance, recently from a huge shortage of pharmaceuticalsupplies because of our broken supply chain system, but India has ahuge capability to complement it. So if we can work on basic
research for mass production of pharmaceutical supplies, that will be
a great improvement and may also contribute to the Indian medicalcare industry, which should in the meantime be very much coveredby national insurance. So these could be common projects. Also,
India seems to have very good evidence-based policy making and wehave relatively good quality of data in terms of old-age medical care,so we could develop a complementary relationship with ourhealthcare industries, and many others. Thus, evidence-based policy
making should be one of the positive common strategies for us toshare.
Urata: The two previous speakers have made all the points that I
agree with, so I will add just one more point. I would like to see morehuman exchanges involving tourists, students, researchers andbusinessmen. I especially think student exchanges should be more
active. There is the potential for more Indian students in Japan and I
would like to see this number increase. I think there areapproximately 1,500 students from India currently in Japan,
compared to approximately 25,000 students from Nepal. Of course,
there are some reasons for this, but the sheer numbers tell us that
our relationship with India in terms of personnel exchanges is notvery developed and there is a huge potential there. Exchanges
between people would increase mutual understanding of theirsocieties and culture, which in turn would expand economic
relations.
Toyoda: Recently I have been trying to promote collaboration
between Indian and Japanese start-ups. Actually, 50 start-up
companies from India are coming to Japan in March or April, so I am
excited about that and there will be some new associations between
Japan and India in this area. I hope that India, in cooperation withJapan, will lead the world as a great power with an Asian worldview
and contribute to building a more peaceful and prosperous world.
Thank you very much for your time today.
Written with the cooperation of Joel Challender who is a translator, interpreter,
researcher and writer specializing in Japanese disaster preparedness.

COVER STORY • 2

IInterview with His Excellency Sibi George, Ambassador of India to Japanndia-Japan: a 1,000-Year
Relationship that Is
Skyrocketing

By Japan SPOTLIGHT with Mohan Gopal

On a cold but sunny weekday morning in mid-January, Japan SPOTLIGHT visited the Embassy of India inTokyo. It faces Chidorigafuchi moat in the Kudan area, a popular area in spring when the cherry-blossoms
are in full bloom. We are here to meet with Ambassador Sibi George and are ushered into his spacious
office. The ambassador is an amiable soft-spoken gentleman, who greets us warmly and asks us to beseated. Delicious Indian tea is served, and the interview begins.
(Interviewed on Jan. 23, 2024)
JS: Could you please briefly tell us

about your diplomatic career and,in particular, what experience you
would consider as most importantfor your career?

Following this, I was back in the Gulf asambassador to Kuwait. In November 2022, I
came as ambassador to Japan. I am also
concurrently accredited as ambassador to the
Republic of the Marshall Islands.

Ambassador: In India, a diplomatic career
JS: Thank you. Indeed, a very
distinguished career. Generally
begins when one is selected for the Indianspeaking, your expertise seems to
Foreign Service through an All-India Civil
be in the Middle East and the Arab
Services examination. I took this examinationworld. As a layman, I feel thatin 1993 and have been a diplomat ever since.
Japan and the Middle East seemIn the initial years after joining the Indiancompletely different.
Foreign Service, one is required to specialize
in a region and language. I specialized in
Ambassador: From India’s point of view,
Arabic, basically the Arab world, and started
each region is very important. Japan is very
my overseas career at the American
important. East Asia is very important. Why?
University in Cairo followed by a stint at our
Sibi George
If you look at the map, India’s most important
Embassy there. My subsequent posting wastrading partners are to her east – Southeast Asia, South Korea,
to Doha, Qatar. The Gulf region is very important for India as it is ourJapan, Australia, the United States. Japan has been a long-time,extended neighborhood. Qatar is an important economic and energy
dynamic partner and this continues. The Indo-Pacific region – apartner for India. After three-and-a-half years there, I moved to New
confluence of two oceans – is important for India and espousing
Delhi, where I was placed in charge of the Japan Office in ourthis, our Prime Minister Narendra Modi has initiated a project named
ministry. Thus, my connection to Japan began 20 years ago. I was
SAGAR (Security and Growth for all in the Region). Japan is avery happy with that and for almost four years I was able to engage
maritime country, and India is also a maritime country. We havein our relationship with Japan. That was the time – in 2000 – thatmany islands – the Andaman and Nicobar archipelago, Lakshadweep
Prime Minister Yoshiro Mori visited India, followed by Indian Primeand others – in addition to a long coastline. India is as important a
Minister Atal Behari Vajpayee’s visit to Japan in 2001. Prime Minister
maritime power as Japan is. In a nutshell, we cannot say that any
Junichiro Koizumi visited India in 2004. It was a period which was a
one region is more important than the other.
turning point in the relationship between India and Japan, and thisEqually crucial as this region is to us is our extended
has continued to progress since then.
neighborhood to our west. In addition to energy cooperation, there
After successive postings at our Embassies in Islamabad,are 9 million Indians working in the Gulf region. This huge body ofWashington D.C., and as deputy chief of mission at Teheran andIndian diaspora working there is in itself a strategic partnership
Riyadh, I was back at our headquarters in New Delhi. My first
involving multiple countries in the Gulf.
ambassadorship was to Switzerland, Liechtenstein and the Holy See.
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • March / April 202419

JS: You have already answered my second question,

as to how your thoughts have been about Japan as
one of India’s partners, so I will go on to my nextquestion. I am curious about your impression ofJapan. You worked in the Japan division of yourministry about 20 years ago and now you see Japanas the ambassador of India. Do you see any change
in your impression?

Ambassador: For several centuries Japan and India have had aconnection, Japan and India had a connection, a traditional,
civilizational cultural connection. Daikokuten, Benzaiten, Buddhism,
leaders like Swami Vivekananda, Rashbehari Bose, Subhash Chandra
Bose, Justice Radhabinod Pal – lots of connections existed atpeople-to-people level. We maintained that relationship between thetwo countries. When it comes to 20 years ago at the start of myengagement with Japan, we had a good relationship, but it was moreof government-to-government. ODA was a very important element of
this. Japan had projects in India; for example, the Delhi Metro project
happened during that period. Gradually that relationship transformed
into a business-to-business relationship. Later it evolved into a
strategic relationship followed by a global partnership. In 2014, thatpartnership became a special strategic and global partnership which
was signed between Prime Minister Modi and then Prime Minister
Shinzo Abe. This year is the 10th anniversary of that partnership. It
marks a complete transformation in our relationship. As ambassador
here, I have travelled to more than 40 prefectures. Wherever I havegone, I have met the governor, local assembly members, the local
media, academia, and of course the local Indian diaspora if present.
One thing I noticed wherever I visited, that this is a moment for the
India-Japan relationship. The India-Japan story is a good one; agreat one. An ambassador is a salesman and can sell a good story. I
am very happy that we were able to connect with each of theseplaces.
JS: What do you think are the most important issues

in the agenda of bilateral relations between India andJapan, in general and also specifically?

Ambassador: First and foremost is our strategic partnership. The
Indo-Pacific is one of the most important geopolitical constructs
today – the Indian Ocean and the Pacific Ocean. In 2007, late Prime
Minister Abe called it the confluence of two seas. Any developmentsin the Indian Ocean have a direct impact on Japan’s prosperity.
Similarly, any developments in this part of the world have a direct
impact on India’s prosperity. Therefore, it is imperative that Japanand India maintain their strategic connection and are able to work
together for peace, stability and security in the Indo-Pacific. I am
20 Japan SPOTLIGHT • March / April 2024very happy that we are working bilaterally, and working as the QUAD,
and also working in multilateral organizations. So, the strategic
partnership is the most important part in our relationship.
Second, equally important is our people-to-people connection.
Indians like the Japanese and Japanese like Indians. How many
Indians are there in Japan? 40,000. That is not enough. There is somuch that we can address together, like the shortage of skilled
manpower in Japan. I mentioned that 9 million Indians work in the
Gulf. They are Indian citizens. They work there, contribute toeconomic progress, then return. That is a system we could look at inJapan. Indian students – how many are there in Japan? 1,500. I
would like it to be 15,000. There are good universities in Japan and I
think this awareness has to be spread in India.
Third, business. There are 1,500 big Japanese businesses in India.
I would like it to be 15,000. We need to have small and medium
enterprises looking at India. India is an opportunity; it is growing. It
has transformed. It is digitally connected. There are more cranes
operating in India than anywhere else in the world – there is so much
construction happening. Our tax system has improved. India hasreformed. Japan must not miss this bus. If India and Japan work
together strategically and in business, it will be good for bothcountries, it will be good for the region and it will be good for theworld.
JS: India has a growing young population, while

Japan unfortunately has a declining one. Perhaps
India and Japan could work together on this?

Ambassador: I fully agree with you. In fact, in the Embassy we have
set up what we call “The India-Japan Skill Connect”. It is a platform
for Indians to know about opportunities available in Japan and forJapanese businesses to be informed about what types of skills they
can source from India. India has some of the best universities in theworld when it comes to science and technology. We are good atmathematics. India’s Chandrayan mission to the moon was donewith completely indigenous technology. All materials were made in
India. If India can send a completely Indian-made satellite to themoon, surely Japan and India can collaborate in the field of scienceand technology. In fact, I am celebrating this year as the India-Japan
Year of Science and Innovation.
JS: I will now move on to my questions relating to theglobal economic and political situation. What role do
you think India could play amidst the current
geopolitical crises?

Ambassador: India is the world’s largest democracy. It is a country
which has always stood for peace. What India brings to the table isJS: Could you please give us your views on the WTO?

The Japan Economic Foundation has been
supporting the WTO for a long time but unfortunately
the WTO’s role is declining.

His Excellency Sibi George and Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT at
the Indian Embassy

solutions. Any problem, we can find a solution. We do not bringproblems to the table. For example, take the case of the G20. India
held the presidency for the last year. The world has seen how India
addressed the concerns of the Global South. Despite the world being
divided, we were able to bring together the G20 countries and have ajoint declaration. That is a major achievement – a declaration
covering 83 points providing an agenda of hope for the world for the
coming years. It was a unanimous declaration that was adopted. In aworld that is divided and in conflict, when it came to the G20, wewere able to have a document of consensus. This is what India
brings to the table – solutions.
JS: In the Indo-Pacific region, as you know, several

free trade agreements are in progress – the CPTPP,
RCEF and others. What do you think about the role ofsuch multilateral forums, particularly for economic
growth and development in the Indo-Pacific region?

Ambassador: When it comes to India, we are very clear in our mind.
We will go by any trade agreement that is in our national interest.
India is one-sixth of the global population; India must take care ofthis one-sixth of the global population. We have always believed infair trade. In business, if one country follows the rule of law andanother country doesn’t, the agreement does not work. For free trade
agreements – bilateral agreements, multilateral agreements – towork, the countries who are signatories must all play by the rules.
One party violating the rules in order to enter another’s market – itjust does not work like that. India actually has a lot of free trade
agreements – both bilateral and multilateral. The basic rule of thumbis that it must benefit the 1.4 billion people of India.

Ambassador: I agree with you. We stand for a strong WTO. India has
always stood for the WTO carrying out its responsibilities. We always
stand for multilateral organizations performing their roles: forexample, the United Nations. We would like to see a reform of the UN
as we believe it is stuck in the past – in the 1950s. It is very
important that the UN plays its role so that it can help the world.
Unfortunately, it is not able to do so as it is stuck in the past. Who
represents the African nations in the permanent part of the security
council? Nobody. It is not represented. Latin America is not there;
the world’s largest democracy is not there. So reforms are needed.
The same is the case with the WTO. We stand for the reform ofmultilateral organizations so that they can better address the needsof everyone in the world.
JS: You have stressed the importance of the India-

Japan Special Strategic and Global Partnership andmentioned some key priorities. Could you kindly
explain some details of those priorities?

Ambassador: Now, why is our relationship called “special”? It iscalled special for a reason. India and Japan have had no history of
conflict. It has been only a history of friendship. That in itself makes
it special. When it comes to strategic relationships, I mentioned how
important the Indo-Pacific region is. It is very important to maintainpeace, stability and security in the Indo-Pacific. Towards this, thetwo major democracies in the region – India and Japan – have towork together. This is very important. Four like-minded democracies
have come together in the Quad for stability and prosperity in theregion. In India’s priorities, we have identified the Indo-Pacific
Oceans’ Initiative. It has several elements articulated by India,
including maritime connectivity and security. Japan is an importantpartner in this initiative, particularly in maritime connectivity. This is
one priority we have to work on.
The second priority is that it is very important to deepen businessengagement. We have been stuck in just 1,500 Japanese companies
in India for the last 15 years. Increase! As I said before, India haschanged; it is an opportunity. Look at the strategy point of view andenable more businesses to come. It is happening now, but I would
like to see a much faster pace.
Third, is our defense relationship. We have excellent defense
engagement. We did three major joint exercises last year – Dharma
Guardian, Veer Guardian and Malabar. There are regular visits byships and by defense personnel. We have to work more on defense
Japan SPOTLIGHT • March / April 202421

technology cooperation.
Fourth is critical technology – semiconductors, quantum
computing, AI. These are areas we must work in. We recently signed
an MOU on semiconductors. We need to do more of this. It ishappening, but again, the pace has to be much faster.
JS: How about cooperation between start-ups in thetwo countries? We need entrepreneurs in Japan tostimulate economic growth. We need start-ups
especially in the IT area.

Ambassador: I see this as a very important area for collaboration. In
fact, India has one of the best start-up ecosystems. We have morethan 100,000 start-ups and at least 100 unicorns. I see a huge
opportunity. We have been having a monthly “India-Japan Start-up
Pitching” event here at the Embassy for the last two or three years.
So, we are collaborating and can do even more.
JS: My next question is about cultural exchanges

between the two countries. You mentioned thatstudent exchanges should be encouraged more. I
agree with you. What about some other areas, suchas the film business?

Ambassador: I am very happy to mention that a big Indian movie isnow being filmed in Hokkaido. Yes, films are a huge opportunity.
You can see the popularity of some Indian movies in Japan – RRR
was a big hit. Have you watched it? It even won an Oscar for themusic. There is a connection between India and Japan through films.
Also, let me mention food. Very important for both sides. Indian wine
is famous in Japan, as also Indian whisky. India has become a goodwine producing country now. Of course, Indian curry is alreadyfamous in Japan. So food is also a connection between India andJapan. I would like to mention that there is a huge cultural exchange
happening between the two countries. We have a cultural center herein our Embassy, which organizes classes in music, dance, yoga andtabla. These are attended by hundreds of Japanese. Last year, I
presented certificates to 400 students who learnt our cultural art
forms. Similarly, we are making other connections – between thesaree and kimono; ikebana, the Japanese flower display, and rangoli,
the Indian color display in complex geometrical patterns made on thefloor. These are strong connections which we must bring forward.
Above all is the connection related to our two civilizations. I havealready mentioned Daikokuten.
JS: Yoga is gaining popularity in Japan. Might that beanother connection?

22 Japan SPOTLIGHT • March / April 2024

Ambassador: I am very happy to mention that over 8 million people
practice yoga in Japan. But what is my target? Anyone who breathes
is a potential yogi. There is much more potential.
JS: Also, vegetarian restaurants. One of the reasons

many young Indians hesitate to come to Japan is that
we do not have many vegetarian restaurants. I think
we should have more.

Ambassador: (Laughs) Yes, yes, that’s right.
JS: The last question is on your views about the futureof the India-Japan relationship. Do you see brightprospects?

Ambassador: India is now in what we call “Amrit kaal ” (Note: In
Indian philosophy, this is the best period for peace and prosperity).
In 1947, we became independent. After 23 years, in 2047, we will be
100 years old. We have a vision – a vision to become a developed
country. A vision to ensure that every Indian is living in a developed
country. And we have a partner – Japan. Japan was the first Asian
country to become a developed country. Japan was the first Asian
country to become an industrialized country. There is a lot that India
can learn from Japan. For Japan, India is an opportunity. As India
becomes a developed country, Japan is a partner in its progress. We
are now a $3 trillion economy. Soon, we will become a $5 trillion
economy. In 20 or 25 years’ time, India will be a major world
economy. And in that, Japan is a partner. We have to work together.
My vision of the India-Japan future is one of two major democracies,
two developed economies in the region working together for thepeace, stability and prosperity of both countries, of the Indo-Pacificregion and the world, and in a reformed United Nations where our
two countries are on the Permanent Security Council.
JS: I think India’s GDP will exceed Japan’s soon. I

hope our relationship is enriched and grows
dramatically. I will conclude the interview here. Thankyou very much.

Ambassador: Thank you very much.

Interviewer: Naoyuki Haraoka is editor-in-chief of Japan SPOTLIGHT &executive managing director of the Japan Economic Foundation (JEF).
Writer: Mohan Gopal is an IT professional living in Japan since 1991. He is amulticulture specialist, teacher and sales coach, and is closely associate with
global humanitarian organization The Art of Living as special advisor in Japan.

March/April 2024

https://www.jef.or.jp/jspotlight/latestissue/

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White Paper on International
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July/August 2023

Tourism Returning as the Pandemic’s
Impact Slows

May/June 2023

Human Capital Investment &Raising Labor Mobility in Japan

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