Remarks by Angel Gurría

OECD Secretary-General 

15 April 2019 - Japan National Press Club, Tokyo

(As prepared for delivery)

 

 

Dear Ladies and Gentlemen,

It is a great pleasure to be back in Tokyo to present the OECD’s 2019 Economic Survey of Japan. This is the eighth Survey of Japan that I have launched as Secretary General. It is also the 15th Survey of Japan – and sadly, his last – that our lead Economist on the country, Mr. Randall Jones has worked on. Let me take a moment to thank him for his work and dedication.

I would also like to thank the Japanese Government, in particular the Cabinet Office, for their support in the preparation of this Survey.

 

Japan’s expansion and reform efforts continue

Japan’s current economic expansion, which began in December 2012, is now the longest in its post-war history; it is not, however, its fastest. We expect GDP to reach ¾ per cent this year and in 2020. The growth of output per capita has accelerated to a pace close to the OECD average and job creation has been robust. Persistent deflation has been replaced with positive, albeit low, inflation.

The three arrows of Abenomics – a bold monetary policy, flexible fiscal policy and a growth strategy – helped Japan overcome two decades of sluggish growth. Reform efforts are paying off. Japan has already taken important steps, such as cutting corporate tax rates, increasing childcare capacity and expanding the scope for foreign workers. It has also become a world leader in promoting free, rules-based trade, notably, through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018 and the Economic Partnership Agreement with the European Union in 2019.

And Japan is a front-runner in the development of digital infrastructure, namely with its Society 5.0 Agenda, which aims at the systemic integration of digital technologies in society.

 

Numerous challenges persist

Despite this progress, the current global economic context creates uncertainty for Japan. The global expansion continues to lose momentum and world trade growth has slowed sharply, we expect 3.3% in 2019. Trade tensions are clouding the outlook for firms and risk disrupting investment and global value chains. Slower economic growth in China is also having an adverse impact on Japan.

Of course, Japan also faces important structural challenges.

Coping with the rapidly ageing population

One of the key challenges for Japan remains its rapidly ageing population. While Japan is a front-runner in confronting the challenges of an ageing society, stronger efforts are needed to address fiscal issues and boost productivity. Half of the children born in Japan in 2007 are expected to live until the age of 107. The prospects of 100-year – or even longer – lifespans comes with a number of opportunities and risks that will lead to fundamental changes in all aspects of life.

Addressing the shrinking labour force will therefore be essential. Assuming constant labour market entry and exit rates, Japan’s labour force would fall by a quarter by 2050. Japan’s traditional labour market practices – such as, mandatory retirement at age 60, lifetime employment and seniority-based wages – are poorly suited to the era of 100-year life spans. As such, Japan needs to shift to more flexible employment and wage systems based on performance rather than age to enable it to better utilise its human capital, including older persons.

Also, to fully reap the benefits of the digital infrastructure, it needs to be complemented by investment in skills particularly for middle-aged and older workers, and policies to minimise the digital divide. This takes me to the next important challenge.

The challenge of gender inclusion

While the female employment has increased significantly due to labour shortages, women are still under-represented in leadership positions. For example, women account for only 10% of the members of the lower house of the Diet. Women continue to face obstacles to employment, such as the burden of providing care for family members. Promoting work-life balance and flexibility, as well as measures to stamp out discrimination, would lead to greater roles for women.

Addressing the fiscal implications of demographic change

The rising number of elderly – whose share of the population is expected to rise from 28% of the total population to 38% by 2050 – also has a major impact on Japan’s fiscal situation.
Spending on health and long-term care is projected to rise by 5% of GDP by 2050. Increasing social spending will make it harder to reduce government debt, which has risen to 226% of GDP in 2018, the highest ever recorded in the OECD area.

Our Survey recommends a comprehensive fiscal consolidation plan covering measures to limit spending and tax increases to ensure fiscal sustainability in Japan. Let me highlight three key elements:

• First, containing spending requires more efficient use of healthcare resources, in part by shifting long-term care out of hospitals and increasing the use of generic drugs.
  
  
• Second, depopulation is driving up costs in many parts of Japan. Achieving compact cities and promoting joint operation of local public administration among neighbouring municipalities to achieve economies of scale would limit costs.
  
  
• Finally, spending restraint needs to be accompanied by measures to increase government revenue. The planned increase in the consumption tax to 8% to 10% is therefore essential and needs to be followed by gradual increases. There is also scope to raise environmental taxes.

Ladies and Gentlemen,

Japan has always stood out for its resilience, its determination, and its ability to come back stronger! As you forge ahead to meet challenges at home and abroad, rest assured that the OECD remains committed to working with and for Japan in designing, developing and delivering better policies for better lives. Thank you.

 

 

 

See also:

OECD work on Economy

OECD work with Japan