2003 OECD Economic Surveys: Japan 2003

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Despite recent acceleration of growth in Japan, OECD warns in its 2004 survey that Japan still faces serious structural problems that limit its growth potential and weaken demand.  This report carefully examines such issues as deflation, fiscal sustainability, product market competition, and further structural reforms and makes recommendations to strengthen Japan’s macroeconomic framework.

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Further Structural Reforms to Enhance Growth

As noted above, Japan’s poor growth performance during the past decade is symptomatic of the failure to adequately address structural problems. Preceding chapters have stressed the importance of reforms to improve the financial system (Chapter II) and to strengthen competition policy and improve competitive conditions in certain sectors, notably the network industries. This chapter takes up some other issues concerning Japan’s growth potential, beginning with the labour market. Indeed, success in restructuring the corporate and financial sectors is contingent on flexibility in the labour market. The following sections look at progress in regulatory reform and then the new strategy of creating special structural reform zones, which are intended to overcome obstacles to reform. The fourth section looks at policies to strengthen international competition by promoting trade and foreign direct investment. The chapter concludes with an analysis of issues important to ensure that growth is sustainable in the long run. Progress in structural reform since the 2002 Survey, as well as a summary of recommendations in this Survey, are presented in Table 24, while Annex II assesses the government’s structural reform programmes in detail...

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