Japan's Economic Reforms "A Guide for Other Nations," Snow Says

Secretary of the Treasury John W. Snow
Press Conference

U.S. Embassy, Tokyo
October 11, 2005

SECRETARY SNOW: Thank you very much, and thank all of you for joining us. It's good to be back in Tokyo. The visit underscores the importance of our relationship, the relationship between Japan and the United States. I had a good opportunity to review matters yesterday evening with Minister Tanigaki and Vice Minister Watanabe, a long discussion on a wide range of issues. I was pleased to be able to commend the minister for the progress which is being made in the Japanese economy. We're delighted to see the pick-up in economic activity in Japan. And from my discussions with the minister and the vice minister, I was encouraged to believe that that good growth and good economic performance is going to continue.

I was also pleased to see that the prime minister's reform agenda is continuing to be acted upon vigorously with the postal-reform initiative due to be acted on by the Diet here very soon. Other reform measures are also important. Japan is demonstrating that commitment to good policy produces good results, and it's important that the lessons of good policy be observed all over the globe, because good economic policy, when applied, changes the course of a country's GDP growth rate. It changes the course of prosperity. It changes the opportunities for the citizens of the countries, and that's being demonstrated here in Japan today.

We had a good chance last night with Under Secretary Adams and the minister and vice minister to go over the G-20 agenda and talk about a number of issues of importance to both of our countries. The relationship between the United States and Japan - Japan and the United States - has to my knowledge never been stronger, never been better, and the good will that is so obvious in that relationship was certainly present last night, as we enjoyed not only the professional relationship, but also the fellowship and friendship of our Japanese counterparts.

I also had the opportunity to visit with the ambassador and get his take on things, fairly early on in his tenure, and to meet with a number of Japanese business leaders, renewing acquaintance with them, including my old friend Dr. Toyoda, who about 10 years ago was head of the Keidanren when I was the head of a counterpart organization called the Business Roundtable, an organization of CEOs of large companies in the United States, a counterpart to the Keidanren, and we established the first of what became many annual meetings of the Business Roundtable and the Keidanren, alternating meetings in Japan and the United States - various parts of Japan, various parts of the United States. So it was good to have a good chance to visit with Dr. Toyoda, who is one of the luminous figures of the global economy, having headed that great company, and having long been a spokesman for the best practices in business, and someone who has taken a keen interest in the health of Japan and the health of the Japanese-American relationship, and the health of the global economy itself. So I was very pleased to have a chance to renew that acquaintanceship and recollect old times and talk about the state of the global economy today.

And with that, let me try and respond to your questions. Yes sir?

QUESTION: I am Satoru Suzuki with TV Asahi, a Japanese television network. Mr. Secretary, as you pointed out quite correctly, the Japanese Diet, or parliament, is now almost certain to pass Prime Minister Koizumifs postal-privatization bills, in the wake of his coalition's landslide victory in the September 11 election. That will create the world's largest private financial institution, with assets of more than $3 trillion. Mr. Secretary, do you have any concern about whether US financial institutions can compete fairly and effectively with such a giant institution in Japan? And do you also expect that the Japanese government, under such a strong leadership of Prime Minister Koizumi, who was given a strong mandate in the last election, will carry out structural reforms in other economic areas as well? Thank you.

SECRETARY SNOW: First of all, let me say that I applaud the prime minister for moving forward on this centerpiece reform measure. It offers the opportunity for far-reaching structural reforms in Japan, reforms that will lead to improved use of resources and the flow of capital, improved flow of capital to uses that have higher productivity. And we trust and hope that the measure will be successful, and that what will emerge from the legislation will be the privatization that the prime minister has called for, of these two critically important entities that have played such a large role in the life of financial markets in Japan - but that it will occur in a way in which there will be a level playing field. We're sure that that's the objective, and it's important that that result occur, because with a level playing field, the economy of Japan will get the benefit of genuine competition, of real competition, and with competition comes better pricing, more choices, better performance. As I understand the initiatives, they are designed to provide for market opportunities that would make that level playing field available. Thank you. Yes sir?

QUESTION: My name is Hideaki Matsuda with Jiji Press. Mr. Secretary, Standard & Poor's downgraded its rating on General Motors, and that depressed US stock prices yesterday, and are you concerned with this matter having an impact on the U.S economy broadly and the relationship between Japan and the United States auto industries? Thank you.

SECRETARY SNOW: The financial markets continue to evaluate all the firms that trade. They do so with respect both to their equity and to their debt, and it's a daily occurrence in the United States and in other sophisticated markets, Tokyo and London, that the markets are rendering a continuous evaluation of debt instruments and of equity instruments. And we don't, as the government, comment on those judgments by the market. So beyond that, I'm really not in a position to comment. Andrew?

QUESTION: Thank you. I just want to ask what youfve seen on this trip compared with past visits and past experience, which has given you confidence in the economic outlook at this point, compared to the series of upturns we've seen over the past decade?

SECRETARY SNOW: One thing I've seen, of course, beyond the numbers, which are telling a good story, is the confidence of the government officials and the confidence of the private sector officials that Japan's on the right course. In talking with the private industry officials yesterday, I saw a confidence in Japanese business and Japanese business' ability to produce good results that was very encouraging to me.

And we met with an old friend of mine named Nishimura-san, who used to be the chairman and CEO at Toshiba and who is now the head of the Tokyo Stock Exchange. And he's only had this position for two or three months, but the Tokyo Stock Exchange has been performing well, he told me, and he expressed - and others have - confidence in the ability of Japanese businesses to continue to turn in good results.

And in talking to the Japanese business leaders, they commented on the changes in the structure of the businesses, the efforts that have been made to modernize business practices and business operations, improve processes, improve product outputs, and improve productivity. So from the private sector side, I've seen more confidence, more optimism than I'd seen in prior visits and in meetings with Japanese private sector leaders, who I often have and opportunity to talk to in the course of traveling around the globe and their travels to the United States.

The same was true, though, in conversations with the government officials I met with yesterday - a real sense that Japan's on the right path, that it's going to be sustainable, that the old bugaboo about deflation is being dealt with in a much more effective way, and that the higher growth rates that have been so evident here lately are going to be sustainable. They're going to continue. Now that's terrific news.

And the other notable change over the course of the years I've been following the Japanese economy and meeting with Japanese business leaders, is the growing relationship between China and Japan, where both as a market for Japanese products and as a source of imports, China has become much more important, and the interrelationships there - the economic, financial, fiscal, commercial interrelationships - are much more pronounced. And of course, now Japan is a major investor in China itself. So one of the things that is reflected, I think today, is the changing nature of the global economy, of which Japan is a very vital part. And the Japanese economy itself reflects the changes in the global economy. So those would be the large impressions I leave with. Glen?

QUESTION: One of the things that we regularly hear from you and from other US officials is that, in order to get the United States' trade imbalances under control, you need faster growth from Japan and from Europe. You seem to have confidence in Japan. Are there lessons from here that you're going to take and give to Europe?

SECRETARY SNOW: Well, we are encouraged, as you say, with Japan. I think Japan's higher growth rates and its emphasis on its domestic economy, as well as its export sector, is going to contribute a lot to stability in the global economy. And to help to get at those imbalances that we've talked about, sure, there are lessons here. There are real lessons here. The lesson is that steadfast commitment to good policy and political leadership that takes the risks to put good policy in place pays dividends. I again commend the prime minister, the finance minister, and many others in this government for having faced up to real problems. Having faced up to the problems of nonperforming loans, having faced up to the problems of the need for reform in corporate structures, having faced up to the need to open up the economy, to deregulate, now postal reforms, and a continuing commitment to do that - there are real lessons there. There are real lessons there, because when political leaders commit themselves to drive through reforms, and then succeed - it never happens unless they first commit and then put the energy into it to drive through the reforms and achieve them - the citizens of that country are going to have long-term higher prosperity, higher growth rates, and a better ability to participate in the wealth-creation process of the world. Those are important lessons.

QUESTION: David Pilling, Financial Times. You mentioned competence of the private sector. But it's notable in Japan that the stock market rally has been entirely fueled by foreigners. And while money has been pouring into the country, the yen has actually been depreciating. I wondered if you've analyzed why that might be so and whether you are concerned about that?

SECRETARY SNOW: Well, I wouldn't be the best authority on that subject, but Nishimura-san yesterday commented on that and expressed the hope that the Japanese citizens will begin to take a greater interest in investing in their own indigenous equity markets and made a good case for why that would make sense. Investments in equities, of course, hold out the prospects in the long term of higher returns. Japan, like the United States, is an aging society. We need more long-term savings to provide for the fact that we are an aging society, and investments in equities create the opportunity for those higher returns. It's one reason that in the United States we remain committed to trying to create more savings vehicles. And in the context of Social Security, create an opportunity for participants in Social Security to get market-based equity returns. So I think that's something that Japan - a promising opportunity for Japan going forward, to engender greater participation in equity markets on the part of the Japanese citizens.

QUESTION: Mr. Secretary, you and the administration in general have repeatedly stressed the importance of trade liberalization to drive forward global growth. In that context, given that we are only weeks away now from the WTO meeting in Hong Kong, are you disappointed with what we're getting out of Zurich in terms of the Japanese apparent refusal to go along with the offer tabled by the US on agricultural subsidies?

SECRETARY SNOW: Agricultural trade is a matter that falls in other portfolios than mine. But clearly, we need to find a way through the Doha round to open up markets generally, markets that are closed. And the president here, several weeks ago, laid out the American agenda. And just last week, a few days ago actually, Ambassador Portman laid it out in even more detail, and that agenda basically is we're prepared to remove our subsidies. We're prepared to remove our barriers. We're prepared to pull down our tariffs, quotas, if the rest of the world will. It was a far-reaching statement, really, a challenge to the global community that the president put out in that speech to the UN, further elaborated upon by Ambassador Portman. The United States is absolutely committed to a free-trade regime, to an open-market regime, to taking down barriers to trade. We are hopeful that the Hong Kong negotiations and discussions will be fruitful. That subject was on the agenda for discussion last night with our Japanese counterparts. I'm encouraged - I wouldn't say confident but encouraged - by things that we see happening. There was a good discussion on the Doha round at the World Bank/IMF meetings just two weeks ago in which I sensed a commitment on the part of the development committees of the IMF and World Bank is reflected in their statements, that you may have seen, that we need to drive forward on the Doha round, make progress with it.

And there were many, many, many compliments that we got for the president's statement, saying that the United States was going to take the lead in pushing liberalization of trade regimes. So we're going to remain committed to that, were going to continue to press forward on it, and were going to continue to urge others to do so. It's important to recognize that trade in services, as well as trade and products, goods, is an essential part of the global trading system, and it's our hope that in Hong Kong real progress can be made on financial services, as well as other services. And I discussed that at some length last night with Minister Tanigaki. And we'll continue to try and encourage everybody to look hard at how financial markets can be opened up, because by opening up financial markets, you energize the local economies. When financial markets are working well, then entrepreneurs and SMEs and job creators get better access to capital. And when financial markets are opened up, businesses get access to financial market products that allow them to hedge risks and undertake capital formation in ways that are more efficient, and share risks, or offload risks to those who are better able to bear those risks. That's how financial markets are working today. And well-functioning financial markets lie right at the foundation of well-functioning economies, and so we're going to be participating, as I'm sure Japan will be, according to the minister, in those Hong Kong talks with the eye to freeing up and opening up the financial services area of the trade talks.

QUESTION: I'm Toshio Aritake from BNA. At that G-20 meeting, you planning to raise the issue of China's renminbi, another round of revaluation? Another question is the Bank of Japan in recent weeks has been sending signals that it wants to get out of the current very generous liquidity-injection policy and if possible from its zero-interest rate policy, which has been around for almost five years. Do you support an early exit of those two policies?

SECRETARY SNOW: On the RMB, we will be having talks with our Chinese counterparts, but that's not to my knowledge on the agenda for the G-20. Our position there is well known. We've articulated it over and over. We applaud the Chinese for having taken the important step - really a historic step - in July to de-link the RMB from the dollar and their commitment that was made at the same time to use demand and supply, market forces, to determine the exchange value of their currency, in other words, to move to a more flexible regime. Having made that important step, which is very much in China's interest, to have a more flexible exchange system, we want to encourage them to continue to move forward on that matter. We also think, as Governor Zhou said last week in a speech I saw, that greater emphasis on the non-tradable sector, on growth of the non-tradable sector, will contribute importantly to the well-being of the citizens of China, to their economic growth and to their prosperity. And we see the two going hand-in-hand - the continuing movement to flexibility, to create better price signals for the Chinese economy, to help deal with discontinuities that arise in an economy where currency is pegged, and a stronger domestic sector. More focus on the non-tradable sector will be in China's interest and in the interest of the global economy as well. So yes, we're going to continue to talk privately about these matters. Again, I applaud the Chinese for the step they made in July, and I want to encourage continued movement. Now on the issue of the Bank of Japan, we respect the independence of monetary authorities, and I've made a practice of not commenting on monetary policy in the United States, so I'm certainly not going to come to Tokyo and comment on monetary policy.

QUESTION: Mike Firn from Bloomberg News. Can you tell me what specific promises you would like to receive from Chinese officials in order not to brand China a currency manipulator?

SECRETARY SNOW: We're anxious to see the Chinese fulfill the commitment they've made to allow market forces to play a larger role in setting their currency value - the exchange value of their currency - over time. And they've gotten on a path that allows them to do so - they've made a commitment to do so - and we'd like to see China continue on that path and see more flexibility. It's important to recognize that this isn't the view of the United States alone; it's the view of the IMF, it's the view of the G-7, it's the view of the G-20, it's the view of any number of the international multilateral banks who take that same view, and it's a view that's articulated because greater flexibility is genuinely in the interest of China. Use of the price mechanism more fully will lead to better results for China, but it will also lead to better results for the global economy. So I wouldn't want anybody to think that this is a singular position of the United States; it's a point of view of that's shared by most observers, I think, of the global economy, and the leading institutions of the global economy like the IMF and the G-7, the G-20, the multilateral development banks, and so on.

Let me close by again saying how pleased I am to be back in Tokyo and to have had the chance to meet with you and meet with Japanese counterparts and Japanese business leaders. I want to emphasize that our visit here is part of a continuing dialogue with the Japanese authorities. Over the course of a year or so, I'll meet or talk with Minister Tanigaki virtually every month or so. So this is simply part of a continuing and very important dialogue that underscores a very important relationship between Japan and the United States. And I'm pleased by how close the ties are between our governments and between these two ministries, the MOF and the Department of Treasury. Thank you very much. It's been good being with you.