The Rivival of Japanese Economy - Great chances to invest in Japan -

1. The Rivival of Japanese Economy - Great chances to invest in Japan - December 2003 Haruo Shimada Special adviser to the Cabinet Office Professor, Faculty of Economics, Keio University Chairman of the Japan Investment Council Expert Committee

2. 1 Two Messages for European Companies “The Japanese economy is changing and reviving through the structural reforms. There are great chances to invest in Japan.” “The Japanese government welcomes FDI into Japan (and local governments, too). We make every effort to improve business environment of European companies in Japan.”

3. 2 The Japanese Economy is Reviving After “The Lost Decade”, there are now many positive signs to reveal the revival of the Japanese economy. 1. GDP growth GDP growth continues. It has exceeded 0% for past 7 quarters. Annual growth is estimated to be 2.1% (2003FY) Source: GDP statistics 2. Stock price The price index of Tokyo stock exchange market (Nikkei 225) has grown over 30% for past 7 months. Source: Nikkei Newspaper 3. Profits of listed companies A total of Consolidated recurring profits of major listed companies has grown 25% from 1H 2002FY to 1H 2003FY. Sales are also growing. Source: Nikkei Newspaper

4. 3 The Structural Reforms has Strengthened the Economy Prime Minister Koizumi urges structural reforms in many areas. Due to the reforms, the vicious cycle is changing into the positive cycle. The Vicious Cycle Non-profitable loans Lack of finance Reduction of businessBankruptcy WagerestraintUnemployment Decreasein stock priceAssess deficit Decreasein profitDeficit Decreasein salesExcess faculties Consumptionrestraint The Positive Cycle RestructuringNew Technology Increase in salesand profit Increasein stock price Revival of the finance sector Investment in faculties, R&D Consumption increase RaiseEmployment Finance to the growing sector

5. 3 The Structural Reforms Create New Market and Industry- 5.3 million Employment Creation Plan - One main purpose of the structural reforms is to create new market and industry to meet potential needs or wants of consumers. It will be a great chance for foreign companies which already established business-models in foreign countries. Service for individuals or families Service for companies or parties Education for adults Housing Child raising Nursing Medical service Legal service Environment

6. 4 High Potential for FDI into Japan Japan has high potential for accepting FDI as below. 10 Advantages of Investing in Japan （Reference: JETRO brochure “Invest in Japan”） • The world’s second largest market (about 15% of the world’s GDP) • The business hub of Asia’s growing economies( 2 hours to Seoul, 2.5 hours to Shanghai, 5 hours to Bangkok) • Abundant highly skilled human resources • Innovative high-level technologies • Efficient infrastructure for dynamic business activities • Reformed legal framework for investment • Successful investment in Japan • Lowered business costs • Abundant market opportunities • Excellent public safety and comfortable living environment http://www.jetro.go.jp/investjapan/index.html

7. 5 The World’s 2nd Largest Market 657 • Japan has the world’s 2nd largest market (about 15% of the world’s GDP, 4 times as much as China’s) • Economic scale of some local areas are as large as the Chinese or Korean economies • The Japanese consumers easily accept high-quality goods which satisfy their needs or wants. 475 422 Spain Korea Kansai District (Osaka, Kyoto, Hyogo) 1,440 1,359 1,159 Kanto District (Tokyo, Saitama, Chiba, Kanagawa) France China 174 115 Fukuoka District (Fukuoka) Greece ※Unit: Billion USD Japan: 2000 FY, Europe and Asia economies: 2001CY

8. Improved Investment Environment through Structural Reforms 6 Competitive market brings lowered business costs Deregulation by Sector After the latter half of the 90s, entry barriers have been deregulated in the telecommunications, distribution, finance and energy sectors. Cases of Market Entry Telecom: Vodafone Distribution: Calfure, Toys’R’us Finance： GE Edison Insurance, Nikko Citigroup (Source: Bank of Japan/ Ministry of Public Management ,Home Affairs, Post and Telecommunications) Business Environment Improvement Amendment of the Commercial Code (e.g., introduction of corporate divestiture system) and insolvency laws to promote business reform in industry Accelerate corporate realignment through M&A (Source: RECOF)

9. Consistency with International Accounting Standards & Auditing System 7 Reduce due diligence costs by developing consistency with international evaluation criteria Implement measures consistent with International Standards to ensure greater accounting transparency and reliance Labor Mobility The improved visibility of prompting labor mobility and foreign capital companies leads to foreign businesses being able to recruit human resources more easily. The Labor Standards Law has been revised to promote a more flexible employee system and the Defined Contribution Pension system has been started to ensure further labor mobility. Number of foreign companies in the top 100 popular companies for university students in Japan Humanities Students 1995: 1　→　2002: 12 Science Students 1995: 9 　→　2002: 24 Source: Mainichi Communications Ratio of Job Change by Sector (%) 8.0 2002 7.0 6.0 1995 5.0 1990 4.0 3.0 2.0 1.0 0.0 Agriculture & Forestry Transportation & Telecommunications Retail, Distribution & Restaurant All Industries Service Construction Manufacture Source: Ministry of Health, Welfare and Labor

10. 8 Japan Welcomes FDI into Japan Government Policy:Doubling the cumulative amount of FDI in the next five years General Policy Speech by Prime Minister Koizumi(January 2003) “FDI in Japan will bring new technology and innovative management methods, and will also lead to greater employment opportunities. Rather than seeing FDI as a threat, we will take measures to present Japan as an attractive destination for foreign companies with the aim of doubling the cumulative amount of FDI in five years.”

11. 8 JICEC: Collecting broad opinions JICEC (The Japan Investment Council Expert Committee) plays a main role to consider policies to increase FDI. JICEC consists of various members related to FDI and they discuss hotly about “How to invite foreign companies to Japan?” or “What is the obstacle for foreign companies to entry into Japan?” JICEC members 23 members from professors,managers, lawyers, governors of local governments, etc. 14 members from related ministries (Director General, etc) (Number of foreigners among the members is 10) Through 10 times of meeting, JICEC drew up a report named “The Program for Promoting FDI into Japan” (See next page)

12. The Program for Promoting FDI into Japan 9 ～Japan will develop into an attractive country for foreign businesses～ The Program for Promoting FDI: 5 Priorities, 74 Measures • (1) Reviewing Administrative Procedures • Make the administrative procedures simpler, faster and clearer • clarify legal interpretation. • (2) Improve business environment • Facilitate cross-border M&As • increase entry by the private sector to public services. • (3) Improve employment and living environments • Meet the need for diverse ways of working • improve systems related to entry and residence of foreign nationals • (4) Development of local and national framework • Support local governments' autonomous efforts to attract FDI • provide information and support procedures by JETRO. • (5) Disseminate information within Japan and abroad • · Promotion by national leaders, diplomatic missions abroad, foreign press. http://www5.cao.go.jp/access/english/jic_main_e.html

13. One-stop Support System 10 • In May 2003, JETRO established the Invest Japan Business Support Center (IBSC) as a one-stop office to provide foreign companies with comprehensive information regarding investment into Japan. • The Japanese Government also established “Invest Japan Offices” in each ministry, which cooperate with JETRO’s IBSC. Ａ Provide comprehensive information Advice on administrative procedures MINISTRIES Foreign Companies JETRO Ｂ Consultations and inquiries Response and introduction of specialists Ｃ http://www.jetro.go.jp/investjapan/index.html

14. 11 Major Progress in the Program • Major items are below. • (1) Introduction of flexible merger techniques • (2) Enable operation of public institutions by private sector • (3) Enhance foreign law firms’ activity in Japan • (4) Enhance letter ruling system of National Tax Agency • (5) Enable easier TOB procedure

15. The End We make every effort to improve business environment of European companies in Japan. Thank You!