[Title] GROWTH STRATEGY, Japan

Japan's 2017 Hamburg Growth Strategy

Table of Contents

A. Economic Objective and Context ...2

B. Implementation of Past Growth Strategies ...2

C. Major New Policy Actions Supporting Growth - Hamburg Summit ...2

C1. Macroeconomic Policies ...2

C2. Structural Reform and Other Actions to Foster Strong, Sustainable, Balanced, and Inclusive Growth ...3

Annexes ...4

Annex 1. Key Economic Indicators ...4

Annex 2. Implementation of Past Growth Strategies – Hangzhou, Antalya and Brisbane commitments...5

Key Commitments ...5

Key Commitments for Monitoring Purposes ...5

Non-key Commitments ...6

Annex 3. Major New Policy Actions Supporting Growth – Hamburg Summit ...7

Annex 4. Past commitments – St. Petersburg fiscal commitment... 8

A. Economic Objective and Context

Japan's economic fundamentals are solid as Abenomics has made steady progress. For instance,

- Real GDP has been growing above its potential for five consecutive quarters through Q1 2017. The momentum toward achieving the price stability target of 2% has been maintained.

- For the past three years, wage increase has been at the highest level in this century. This trend is continuing this year as well.

- The labor market remains tight. In April 2017, the unemployment rate stayed at 2.8 percent, and the job-to-applicant ratios were 1.48, above one in all prefectures.

Going forward, it is important to ensure that growth in consumption and investment continues to strengthen. To achieve such a virtuous circle, sustained and stable wage increases are crucial.

Structural reforms aimed at raising potential growth will also contribute to achieving such wage increases.

The government will continue to accelerate Abenomics by using all policy tools - monetary, fiscal and structural, in cooperation with the Bank of Japan.

B. Implementation of Past Growth Strategies

Japan has made substantial progress in implementing structural reforms, including in female labor participation and "work-style reform."

Female labor participation

- Passed bills to expand application of employee insurance for part-time workers and to revise the spouse exemptions in the income tax.

- The rate of female labor participation rose from 49.6 percent in 2015 to 50.3 percent in 2016.

"Work-style reform"

The government developed the "Action Plan for the Realization of Work Style Reform" in March 2017 and published achievements in FY 2016 (April 2016 – March 2017) as follows:

- Presented the directions of legal revisions to eliminate the irrational gaps in the working conditions between regular and non-regular workers, based on a draft guidelines for "equal pay for equal work," which was made public in December 2016.

- Presented the directions of legal revisions to define a regulatory limit on overtime work with penal regulations.

- Launched supportive measures including a subsidy to encourage firms to keep on hiring employees aged over 65.

- Raised minimum wages in FY2016 by 3 percent on average.

C. Major New Policy Actions Supporting Growth - Hamburg Summit

C1. Macroeconomic Policies

On the fiscal front, in March the Diet passed the FY2017 budget, with the total amount of 97.5 trillion yen, or 18 percent of GDP.

To achieve both economic recovery and fiscal consolidation, the budget has shifted its focus from quantity to quality by prioritizing expenditure. For instance, the government is focusing public investment on areas that would lead directly to higher potential growth (e.g., promoting science and technology, infrastructure investment to strengthen logistics networks).

At the same time, we have achieved the expenditure benchmarks in the fiscal consolidation plan for two consecutive years, including through social security reforms.

On the monetary front, the Bank of Japan introduced Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control in September 2016 as a means of strengthening the previous frameworks for monetary easing, with a view to achieving the price stability target of 2% at the earliest possible time.

The new policy framework consists of two components. The first is an inflation-overshooting commitment: the Bank of Japan will continue expanding the monetary base until the year-on-year rate of increase in the actual CPI exceeds 2% and stays above that level in a stable manner.

The second is yield curve control: the Bank of Japan will facilitate the formation of the yield curve that is considered most appropriate for maintaining the momentum toward achieving the price stability target of 2%, taking account of developments in economic activity and prices as well as financial conditions.

C2. Structural Reform and Other Actions to Foster Strong, Sustainable, Balanced, and Inclusive Growth

Japan's priority is to overcome population aging and declining birthrates through structural reforms.

In this respect, the Government of Japan will continue to advance "work-style reform," which promotes labor participation of women and the elderly and raises labor productivity, along the action plan developed in March. The reform would not just raise actual growth but also enhance inclusiveness. Specifically, our policy priories include the following:

- Addressing the duality between regular and non-regular workers

- Correcting long working hours

- Advancing human resource cultivation and supporting reemployment

- Promoting flexible work styles

- Introducing new scholarship programs to equip children of low-income families with skills and knowledge in tertiary education before their entry into the labor market

We adopted the 2017 Growth Strategies in June. One of the key elements of the Strategies is to accelerate our efforts to realize "Society 5.0," where physical space and cyber space are seamlessly connected through IT networks, by advancing innovation through the fourth industrial revolution (e.g., AI, IoT, big data, robots). These efforts would strengthen the resilience of our economy by raising potential growth. Our priority area includes the following:

- Health (e.g., utilization of AI, IoT, big data, robots)

- Transportation (e.g., unmanned travelling)

- FinTech (e.g., regulatory reform)

Annexes

Annex 1. Key Economic Indicators

Key Indicators*

*All indicators are presented on a fiscal year basis

***A positive (negative) balance indicates a fiscal surplus (deficit). "Fiscal Balance" refers to that of the central and local government combined. It excludes the expenditures and revenues related to the recovery and reconstruction from the Great East Japan Earthquake.

Sources: "Quarterly Estimates of GDP: January – March 2017 (The Second Preliminary)" (Cabinet Office, June 2017); "Fiscal 2017 Economic Outlook and Basic Stance for Economic and Fiscal Management" (Cabinet Office, January 2017); and "Economic and Fiscal Projections for Medium to Long Term Analysis" (Cabinet Office, January 2017) (Economic Revitalization Case).

Annex 2. Implementation of Past Growth Strategies – Hangzhou, Antalya and Brisbane commitments

List of key commitments already fully implemented at the time of Hangzhou Summit

1. Corporate Governance reforms

2. Reduction of regulatory uncertainty by introducing a new mechanism under which enterprises are able to check in advance whether any regulatory restrictions apply to their business

3. Enactment of a law for equity crowd-funding

4. Regulatory reforms in National Strategic Special Zones

5. Regulatory reforms of airport access by bus

6. Regulatory reforms in the agricultural sector

7. Regulatory reforms in the energy sector

8. Expanding trade openness through trade facilitation measures

9. Improving child care benefits

10. Disclosure of the number of women in executive position among the listed companies

Key Commitments for Monitoring Purposes

Non-key Commitments

In the table below, please list your non-key commitments and provide an update on their progress by indicating whether the policy measures are fully implemented, in-progress, or abandoned.

Annex 3. Major New Policy Actions Supporting Growth - Hamburg Summit

Annex 4. Past commitment – St. Petersburg fiscal commitment

Medium-term projections, and change since last submission (required for all members):

* Figures can be presented on a fiscal year basis, should they be unavailable for the calendar year.

** Figures in this table refer to those of the central and local government combined. They exclude the expenditures and revenues related to the recovery and reconstruction from the Great East Japan Earthquake

*** Figures of the latest projections are based on 08SNA. Figures of St. Petersburg fiscal commitment are based on 93SNA.

The debt-to-GDP ratio and deficit projections are contingent on the following assumptions for growth:

* Figures can be presented on a fiscal year basis, should they be unavailable for the calendar year.

** Figures of the latest projections are based on 08SNA. Figures of St. Petersburg fiscal commitment are based on 93SNA.

Source: - "Economic and Fiscal Projections for Medium to Long Term Analysis" (Cabinet Office, January 2017).