"The World and Japan" Database (Project Leader: TANAKA Akihiko)
Database of Japanese Politics and International Relations
National Graduate Institute for Policy Studies (GRIPS); Institute for Advanced Studies on Asia (IASA), The University of Tokyo

[Title] Speech by Prime Minister KISHIDA Fumio at the Guildhall in London

[Date] May 5, 2022
[Source] Prime Minister of Japan and His Cabinet
[Notes] Provisional translation
[Full text]

I am grateful for the opportunity to speak today in the City of London, the world's premier financial centre.

May I extend my sincere appreciation to Lord Mayor Sir Charles Bowman and distinguished members of the City of London Corporation for organising this event.

My main topic today will be economics, but I felt compelled to make a statement at the outset on the situation in Ukraine. Russia's egregious aggression against Ukraine is a clear violation of international law, which prohibits the use of force against a nation's sovereignty and territorial integrity. We have also witnessed the appalling inhumane attacks against innocent civilians in cities such as Bucha.

These violations of international law, and acts amounting to war crimes, are utterly unacceptable and I condemn them in the strongest terms.

The fact that we are faced in a situation where we have to think in reality about the threat of the use of nuclear weapons has special, and strong meaning to me.

This is because I am a politician from Hiroshima, the city where the atomic bomb was dropped. Some of my relatives are atomic bomb survivors. Others died in the bombing. Since childhood, I have heard countless stories about nuclear weapons. This has become a formative experience for me.

These "memories of Hiroshima" are what drives me to take action to restore peace.

In order to achieve peace, the international community must make it clear that aggression as such brings consequences. May I take this opportunity to pay my utmost respect for the British Government and the British people for standing firmly against Russia and for extending a helping hand to Ukraine.

Japan has also been doing its utmost by imposing economic sanctions on Russia and providing humanitarian assistance to Ukraine immediately after Russia's aggression.

We will continue to work with the UK and the international community to take resolute action to end this atrocity and restore peace as soon as possible.

Russia's aggression has also destabilized the global economy, which has been hit hard by soaring oil, resource and grain prices, as well as market volatility. Coupled with the pandemic, many countries are facing economic hardships.

In our fight to defend democracy, we ourselves must stay strong.

The theme of this year's G20 is "Recover Together, Recover Stronger". Prior to my visit to the UK, I traveled to Indonesia, which holds this year's G20 Presidency, as well as Vietnam and Thailand, to confirm our commitment to a strong recovery together with other Asian countries. While overcoming the vulnerability of our own energy self-sufficiency by diversifying energy procurement, maximizing introduction of renewable energy, and diversifying energy sources through the use of nuclear energy, Japan will also actively contribute to the recovery beyond Asia.

The invasion of Ukraine is a challenge that is not confined to Europe—it is a matter for the whole world, including Asia. Japan will work together with other nations and take actions with resolute determination so that we would not be sending out the wrong message to the international community; so that using force to unilaterally change the status quo shall never be repeated.

At a time of drastic change, the UK-Japan partnership remains crucial. Our two countries share universal values such as freedom, democracy, human rights and the rule of law. I am confident that Japan and the UK will continue to be indispensable partners in the fields of security and the economy.

Distinguished guests, let us join together even more firmly to defend the values we believe in.

Now, let me shift to economics.

I would like to introduce to you an economic policy I am advocating, which I call "new form of capitalism".

The single message I wish to convey to you is this: The Japanese economy will continue to see robust growth. You can invest in Japan with confidence. Invest in Kishida.

Of course, Japan does face many challenges. But I am prepared to lead reform efforts to tackle these challenges head-on.

One feature of the Japanese economy is stability. Because we live in an era of geopolitical uncertainty with supply chain disruptions and drastic shifts in energy and other resources, I see this as an advantage for Japan.

Sustained growth; stable markets; and safe, reliable companies, products and services. This is why Japan is a "buy."

Allow me to give a brief personal perspective on my economic thinking. When I was young, my father was posted to the United States due to his work, and I went to a local primary school in New York. Even as a child, I was greatly impressed by America's wealth and diversity.

I am the first post-war Japanese Prime Minister with experience working in the finance industry. From 1982 to 1987, I worked for a bank that supported recovering businesses. As a staff member responsible for loans for the shipping industry, which was struggling with international competition, I witnessed a number of bankruptcies first-hand, but also worked with managers to promote corporate restructuring.

My strong conviction based on these experiences was that a robust economy supported by the animal spirits of the private sector is of paramount importance. Since I entered politics in 1993, I have worked on industrial policy, science and technology policy, and policies for small and medium-sized enterprises. Indeed, one could say my life's work has been to revitalise the Japanese economy.

Based on my personal experiences, I would argue that I am the most knowledgeable recent Japanese prime minister when it comes to the realities of the economy and finance, and I will continue to advance policies by listening to the voice of markets as well as the people on the ground.

So let me be clear: Japan is and will continue to be a trading and investment powerhouse open to the world. Japan will grow by being connected to the rest of the world through the free movement of people, goods, money and digital technologies across borders.

At the end of last year, Japan strengthened its border control measures in response to the global spread of the Omicron variant. It was an essential public-health step to delay the variant's entry into the country. This allowed us to fortify our healthcare system and promote vaccinations. I hope it is not too boastful to say that Japan's response to COVID-19 has been one of the most successful in the world.

We have now eased border control measures significantly, with the next easing taking place in June, when Japan will introduce a smoother entry process similar to that of other G7 members.

History has proven that Great Britain has prospered through its connections with the world. Today, for Great Britain, that means above all being a major centre of international finance, with the City at its heart.

This resonates with Japan, which is also a maritime nation.

Connecting with the world: I am convinced this is imperative for the prosperity of Japan too.

In line with this view, Japan prides itself on being the world's foremost promoter of free trade in recent years. Last year, the Japan-UK EPA entered into force, and Japan has been an avid supporter of the UK joining the CPTPP, a process that is currently underway.

Japan is, and always will be open to the world. Distinguished guest, I earnestly hope that all of you will visit Japan. We will offer our utmost hospitality.

Now, let me say a few words about the "new form of capitalism" that I have been advocating.

What exactly do I mean by "new"? To put it succinctly, I am talking about an upgrade - a stronger, more sustainable version of capitalism.

Why does capitalism need upgrading? Because we need to solve two crucial present-day challenges.

One is the problem of economic externalities, such as widening inequality, climate change and issues deriving from urbanization. Global capitalism has driven growth and prosperity, and its achievements should be duly acknowledged. But in its current form, it also has downsides.

The second pressing challenge is that posed by authoritarian states. Liberalism and democracy are under pressure from authoritarian regimes, including some that have achieved rapid economic growth. Too often this growth has come through unfair trade practices and other methods that ignore the rules of a liberal economy. We must make economies in democratic nations sustainable and inclusive in order to defend freedom and democracy.

I advocate that we address both of these challenges I have mentioned by upgrading capitalism.

Capitalism has changed before. Indeed, it has experienced at least two major transformations. One was the transition from laissez-faire to the welfare state. The other was the shift from the welfare state to neoliberalism.

In both of these transitions, the pendulum swung between two ideas: "market or state", "public or private". But the next transition will be to a "new form of capitalism", in which the public and private sectors work together. Instead of "or," we will have "and"— market and state, public and private.

The public sector will act more than ever to draw out the power of the private sector as much as possible, while the private sector will make greater use of its capabilities to solve social problems that have until now been considered the domain of the public sector.

Under this new form of capitalism, social challenges can become engines of growth. The government will prime the pump to create new markets in challenging areas, attract private investment, and foster public-private collaborations. In this way, we will address social problems while at the same time driving robust growth. "Two birds with one stone," as we say in Japanese as well as in English.

In Japan, there are a number of things we need to do to achieve a new form of capitalism: eliminate distribution blockages; overcome underinvestment in new value-added sectors; boost labour mobility to new sectors; promote diversity; and nurture what I would call a "healthy economic metabolism."

Accomplishing these things will require investment, specifically in four key areas: people; science, technology and innovation; start-ups; and green and digital initiatives.

Let me start with people. Investment in human capital is at the heart of the growth strategy of the Kishida Administration.

In the new era, intangible assets such as human capital, intellectual property and innovation will become more important than tangible goods. Creativity and innovation will be crucial in the waves of digital transformation and decarbonization —and for that we need skilled people who can create and innovate. Japan will face labour shortages. We must produce maximum value with a shrinking pool of workers.

We need to expand investment in people, both in terms of "flow" and "stock."

On the flow side, the relevant issue is wages. A major challenge for Japan is that, while productivity growth per working hour has been comparable to that of other countries, wage growth has been low. That has held back consumption and, by extension, overall economic growth. Japan must foster productivity growth and ensure that wages rise alongside productivity. To do that, the government will introduce tax incentives that encourage employers to increase wages, and work with the private sector to create a social atmosphere in which it is normal and natural for pay to rise.

Next, on the stock side, investment in vocational training, recurrent education and lifelong learning is vital. The reality is that investment in education and training in the corporate sector in Japan is much lower than in other countries. My government has already introduced a three-year, 400 billion yen package, and we will actively support labour mobility and job mobility by further increasing investment, and promoting the accumulation of human capital. We will in particular focus on re-skilling as well as promoting side careers.

The keyword in this context is diversity. Japan is blessed with many promising women and young people. Moreover, people from around the world are increasingly coming to Japan to live and work. For Japanese companies to achieve innovation-driven growth, they need to become more diverse. My government will support their efforts by expanding assistance for childcare and making it easier for people to work in more flexible ways.

Another way I intend to invest in people is to promote a shift from savings to investment. The financial assets of Japanese individuals are said to amount to 2,000 trillion yen, more than half of which is held in bank deposits and cash. As a result, while household financial assets have tripled in the US and increased 2.3 times in the UK over the past decade, in Japan they have increased only 1.4 times. This is a waste—but also a source of future potential.

I will promote a bold and fundamental shift from savings to investment, in order to double people's incomes from asset investments. To this end, I will mobilise all policy measures in advancing the "Doubling Asset-based Incomes Plan" including a major expansion of NISA, a tax exemption program for small investments—the Japanese version of an ISA—and the creation of a new mechanism to encourage citizens to move their savings into asset management.

The second pillar is investment in science, technology and innovation

Just as vaccines became a game changer in the fight against COVID-19, science, technology and innovation have the power to solve many of the social problems facing the world, such as infectious diseases, global warming, falling birthrates and ageing populations.

Science and technology will also play a major role in determining the victor in the intensifying competition between democracy and authoritarianism. For example, development and production of advanced semiconductors may determine global competitiveness and even national security.

Unfortunately, current investment in R&D by Japanese companies is far less than that of other developed countries. The same goes for capital investment. This must be changed.

We need to present a clear national strategy, and national growth-rate targets, which companies often use in guiding their investments, and then act as a priming agent to induce corporate investment.

To this end, we will articulate a national strategy in five fields: AI, quantum technologies, biotechnology, digital and decarbonization. Strong incentives will be offered to companies that increase R&D investment in accordance with the national strategy.

Collaboration between industry, academia and government is essential for science, technology and innovation. Revitalising "academia" is especially key. Last year, a 10 trillion yen university fund was launched.

Through this fund, we will support university R&D, but with a precondition of governance reform. Universities will have to thoroughly implement governance reforms, such as the separation of management and academia, and the introduction of external funding and management teams.

The third pillar is investing in start-ups.

When you hear "Japanese companies", you probably think of major corporations like Honda and Sony. But these large companies, which have been the driving force for Japan, were originally start-ups founded by young entrepreneurs shortly after the end of World War II.

Honda was founded in 1946 by a 39-year-old HONDA Soichiro. Sony was also founded in 1946 by a 25-year-old MORITA Akio.

In the United States too, mega companies like those that make up GAFAM began as start-ups that drove the revival of the US economy in the technology sector.

It is therefore my earnest wish to create the next start-up boom in Japan.

Changes are happening on the ground in Japan. Instead of taking conventional jobs at large corporations, many brilliant university students are launching their own start-ups after graduation. Even at the University of Tokyo, the oldest university in Japan, and best known for producing leaders for government and major corporations, change is happening: more than 300 venture companies are being created from the University.

There is another important change. More and more entrepreneurs have strong aspirations to solve social problems.

One woman I spoke with recently while sitting down with a small group of social entrepreneurs, had launched a new business while still at school and, soon after graduation, started a crowdfunding start-up. Her work has helped both hospitals struggling with surges in patients and restaurants struggling with fewer customers due to COVID-19. I hastened to add she studied at LSE.

I have high hopes for the future of such practitioners of a "new form of capitalism", which pursues the dual goals of economic growth and social entrepreneurship.

I intend to further encourage these positive changes in Japanese society. We will create an environment where young people can jump into start-ups more easily.

This will require a set of integrated measures: The creation of start-up campuses, including with leading overseas universities; The drastic expansion of the SBIR (Small Business Research Initiative) system for start-ups; The attraction of overseas venture capital, combined with public capital participation in overseas VC; The circulation of personal financial assets and long-term investment funds from institutions such as the GPIF into venture investment; And the development of stock options and other measures to promote the growth of start-ups.

Steps to foster such a start-up ecosystem will be consolidated as a five-year plan, and a cross-cutting command post function for implementation will be clarified.

Last but not least, investment in green and digital initiatives.

Russia's aggression against Ukraine has made clear the importance of energy security.

Climate change remains an urgent issue.

In addition to renewable energy, we will utilise nuclear reactors with safety assurances to contribute to worldwide reduction of dependence on Russian energy. Restarting just one existing nuclear reactor would have the same effect as supplying 1 million tonnes of new LNG per year to the global market.

At the same time, with a long-term perspective, Japan will achieve its international commitments to carbon neutrality by 2050 and to reduce greenhouse gas emissions by 46% by 2030, while ensuring a stable energy supply. To achieve these goals, 150 trillion yen in new investments will be raised over the next decade through public-private collaboration, including 17 trillion yen in fiscal 2030.

On the other hand, Japan has financial assets of 2,000 trillion yen and corporate cash and deposits of 320 trillion yen. What is crucial is having innovative policy initiatives that connect the immediate and massive investment needs to the huge potential for financing. Investments which the private sector is hesitant to make due to uncertainties, should be elicited and made a pillar of the medium-term growth strategy.

In order to draw in 150 trillion yen in new investments, we will swiftly formulate a comprehensive policy roadmap to 2030 composed of two policy initiatives; the first is maximum utilization of growth-oriented carbon pricing, or "pro-growth carbon pricing," which increases predictability for companies while promoting growth and innovation; and the second is the use of investment promotion measures that integrate regulation, such as energy efficiency standards, and financial support, such as assistance to promote long-term large-scale investments, as a package.

And of course, investment in digital.

With a shrinking workforce, there is an urgent need to utilise digital technology, and Japan will actively promote digital transformation in both the public and private sectors.

Digital services are also a source of new added value and a key to solving the challenges we see in Japan's rural areas, such as declining birth-rates, and ageing and declining populations. Japan will develop an environment for the promotion of web 3.0, such as blockchain, NFTs and the metaverse, and achieve a society that facilitates the birth of new services.

In so doing, systems and regulations that are unfit for technological advances need to be closely reviewed. Under the guidance of the Digital Agency established last year, a major reform is being carried out, identifying more than 40,000 analogue-era regulations and reviewing them in one fell swoop over a three-year period.

Furthermore, in anticipation of a full-fledged digital economy, Japan will advance 5G and fibre optics installation to cover nearly 99% of demand over the next five years, creating a world-class digital infrastructure.

What I have just laid out are the four key pillars of a new form of capitalism.

The success of these policies requires a strong macroeconomic framework and financial market reform to support them.

A bold monetary policy, flexible fiscal policy and a growth strategy to stimulate private investment, will continue to be put in place in an integrated manner.

To achieve a truly "agile" fiscal policy in a difficult fiscal climate, we will transform the state of public finances in two ways.

First is single-year budgeting. To make it easier for companies to see and predict the long-term direction of the country, and derive expected future growth rates, we will make a breakthrough in the single-year budget principle through funds and other means.

Secondly, on tax policy, our philosophy is that introducing incentives such as tax cuts now will lead to increased revenues in the future as the economy accelerates.

Finally, I would like to talk about financial market reforms.

In order to realise the new form of capitalism I illustrated today, we need to revive Japan as an international financial centre.

When I was the Chairperson of the Policy Research Council of the Liberal Democratic Party, I made decisions that helped to facilitate the entry of foreign investment managers, revive of the corporate governance code, and introduce greater flexibility in the requirements for professional investors. As Prime Minister, I will continue to lead to achieve steady progress.

In particular, there has been considerable progress in Japan's corporate governance reforms over the past decade. I will do even more to promote reforms that enable companies to increase their value over the mid-to-long term.

In addition, through the "Doubling Asset-based Incomes Plan" I mentioned earlier, we will awaken 1,000 trillion yen, currently sitting dormant in savings accounts, so it can work to stimulate the market.

Also, with a view to carbon neutrality in 2050, Japan will strongly cultivate the green bond market and go beyond that to the transitional bond market for Asia.

When I leave London today and return to Tokyo, there will be less than 50 days to go until the official start of the Upper House election campaign, the political battle of the summer.

Given the current crisis in Ukraine, the deteriorating security environment surrounding Japan, and the economic crisis caused by high oil prices, stability in government is essential.

We will battle to the end to achieve victory and gain the support to implement the plans I spoke about today.

Kites rise highest against the wind – not with it.

I am now reflecting on the words of Sir Winston Churchill. The Ukrainian crisis, the rise of authoritarian states, climate change and inequality. In this world under raging storm, I shall remain unperturbed against the heavy wind.

Next year, Japan assumes the presidency of the G7. As the flag-bearer of democracies, we will face this "storm" head-on, with the vision of a new form of capitalism.

I would like to conclude my speech by promising to return here again as a kite rising high.

Thank you very much for your kind attention.