Junichiro Koizumi, the recently elected Prime Minister of the worlds second largest economy, met with the leader of the worlds largest economy in late June 2001. Together, Koizumi and US President George W. Bush spoke about Koizumis proposed economic reforms for Japan and further economic cooperation between the two nations. This was the first meeting of the two leaders since Koizumi became Prime Minister in April 2001.

Koizumi has been a member of the Liberal Democratic Party and is now the 87th Prime Minister of Japan. Koizumi brings with him an eccentric personality and a new-fangled attitude compared to traditionally elitist Japanese politicians. Shortly after being appointed, Koizumi formed his cabinet, which includes members from the private sector, women, and much younger members of the Diet (the Japanese bicameral Congress). His approach to politics could be a breath of fresh air to Japans slowing if not stalled - economy, if Koizumi manages to implement planned economic reform policies. In a statement following his appointment, Koizumi declared In order to restore the faith of the people in politics, I am resolved to making this Cabinet the Ceaseless Reform Cabinet based on my view that without structural reform there can be no economic recovery.

With this in mind, it seems Japan could be on its way to economic recovery. However, as the saying goes, easier said than done. Japan has a history of slow change, and the most probable scenario is a prolongation of previous policies, or just gradual change. The pace of reform is a frustration for all; regardless of the fact that Koizumi should be regarded as a new breed, the fact remains that there are many older voters in Japan who prefer social stability over change. It will not be easy to change the pace of reform, but up and coming younger voters in this democracy, along side Koizumi, will hopefully make a difference.

The Japanese economy has been suffering for the last decade, and with very specific causes, starting with the banking system. Japan banks have been very tolerant, lending to high-risk borrowers and lenient towards non-performing loans. These facts, combined with Japanese business practices, such as cross holding evidenced by the keiretsu system, have resulted in substantially lower return rates on capital than in other economic systems. Everything Japan has done with its economy in the past has been a mystery to others. With the obvious problems in the system, it would seem that change should be inevitable.

Japan has other problems as well that has contributed to its declining economy. Corruption is entrenched in the government, and over the years, politicians have amassed major governmental debt. Nearly all of this debt is held domestically, but at some point the government will come to a dead-end in terms of its capacity to borrow money. Previously it had borrowed in order to prop up the economy, spending borrowed dollars on public projects, loans to government-supported companies, and money to stabilize the banking system.

With the many problems facing the Japanese government, the question is: what can be done? The government needs to implement policy that would allow for a raise in unemployment, earlier retirement and increased pension plans to encourage retirement, and more foreign takeovers of Japanese businesses. Banks should foreclose on bad borrowers who have little or no hope of repaying their debt, stop lending to businesses and people who are considered to be high risk, and lastly banks that are badly in debt should be merged, liquidated or otherwise disposed of.

Koizumi and his new Cabinet have already made proposals for the future of the Japanese economy, acknowledging the main problems with the current system such as non-performing loans and excessive corporate and governmental debt. Specific measures have been laid out by Koizumi and his Cabinet; what is needed is a focused commitment to implementation of these measures.

The first measure outlined in a plan by the Koizumi government concerns revitalizing the financial and corporate sectors. It states that banks will take steps to remove non-performing loan holders labeled as in danger of bankruptcy within the next few years. The next measure is to promote corporate reorganization by establishing guidelines and debt forgiveness for companies in financial difficulty. Since this would mean increased debt for banks, the government will step in and offer support in the restructuring. Concerning debt forgiveness, the government will investigate suitable procedures to be taken by the financial institutions to minimize the burden on the public. The government will also organize a series of debt collection companies to increase debt collection by large companies.

Japan is unique in the fact that it is more group orientated rather than individually minded. It has the lowest rate of start up companies and entrepreneurs among all developed nations. The new Japanese government has stated it will take measures to help small and medium sized businesses in order to expand employment opportunities to its public.

By international standards, Japan has an unemployment rate this is relatively low. But, by Japanese standards, it is quite substantial. Japanese society strives to keep this rate as low as possible, and the Koizumi government has outlined measures for this effort as well. The plan is to pass a bill that would introduce pension plans, which would encourage an earlier retirement for aged members of the work force and increased job opportunities for the younger members. The government will also revise the current Employment Insurance Law to ensure insurance for those released or required to leave due to bankruptcies. It will also offer training courses for middle age and older skilled workers.

The people need to be considered when planning a massive restructuring of any sector. Citizens are affected as the economy continues to weaken: as corporate profits slow down, as stock prices decline, and as personal and business investment slows. As exports and imports decrease, prices increase. These factors, combined with deteriorating business confidence, indicate that the economy is in a recession and something needs to be done.

Despite all of this, Japan remains a significant international economic force. It is the worlds second largest economy as well as the worlds second largest international aid donor; its GDP was estimated at US$ 3.9 billion (as of June, 2000). It is among the worlds largest and technologically advanced producers of machinery, electronic equipment, and motor vehicles. Still, reform is crucial, and it seems Koizumi is on the right path. No doubt reform will take time, and foreign investment in Japan will remain risky. But, in this case, with reform comes opportunity.

With the promise to open up Japans financial sector and implement a series of reform, Japans Prime Minister, Junichiro Koizumi, is paving the way for what could be a field of opportunities for foreign businesses. Businesses with an interest in the Japanese market should pay close attention to the new Prime Ministers decisions concerning the economic, banking, and financial sectors in Japan. Other sectors may yield additional opportunities in the future. A well-informed advisor, along with appropriate due diligence and business intelligence, may result in tremendous opportunities in an opening Japanese economy.

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