Now the outlook for growth is even more bleak. In JFY 1997 the Japanese GDP fell by 0.7 percent. In the first quarter of 1998 Japanese GDP fell by 1.3 percent. Following two quarters of negative growth, Japan is technically in a full-blown recession. The most important contribution Japan could make to the restoration of stability and growth in Asia is to strengthen domestic demand, deregulate its economy, and open up to imports.
Japan has the only economy with the ability to be an Asian locomotive.
Japan's overall fiscal policy has been quite restrictive. The latest economic stimulus package and amendments of the fiscal reform law signal a loosening of this stance, but it may not be enough to promote vigorous domestic demand-led growth in Japan. Indeed the stimulus package has not yet emerged from the Diet. There is an urgent need for Japan to move forward with both the stimulus package and with deregulation. Last month in Birmingham the President and the Japanese Prime Minister announced a number if important steps Japan will undertake to open its markets and improve economic efficiency.