Japan Government Panel to Call for Economic Reform

In what amounts to a declaration of government policy, a commission appointed by the prime minister will recommend Monday that Japan change its export-oriented economy, reduce its “crisis-level” surpluses, put less emphasis on individual savings and promote domestic consumption.

But the declaration, which is an acceptance of U.S. calls for reform of Japan’s economic structure, sets no deadlines or numerical goals. The report, to be submitted to the government by Prime Minister Yasuhiro Nakasone’s Advisory Commission for Economic Structural Adjustment for International Harmony, merely urges adoption of policies that will achieve its recommendations.

Nonetheless, the commission, whose recommendations Nakasone has pledged to carry out, acknowledges a series of what it calls flaws in Japan’s economic structure, which it says has created “a crisis condition” of current account surpluses. The current account balance includes trade and non-trade transactions such as shipping and insurance costs and money spent by tourists.

Last year the surplus reached $50 billion, or 3.6% of Japan’s gross national product.

The report marks the first time that Japan has accepted the principal blame for its merchandise trade and current account surpluses. In effect, it admits that its economy is out of harmony with the economies of the rest of the world and it represents acceptance of demands by Reagan Administration officials that Japan restructure its economy.

Centerpiece of Response

Nakasone sat in on most of the deliberations of the commission, headed by Haruo Maekawa, a former governor of the Bank of Japan. The 67-year-old prime minister, who appointed the commission last fall, has said publicly that the report will be the centerpiece of his response to possible criticism of Japan’s trade policies at the economic summit conference of seven advanced nations to be held here May 4-6.

The full text of the report was published in Japanese newspapers Wednesday. No major changes are expected in the contents of the report before it is formally submitted Monday.

In merchandise trade alone, Japan last year recorded a $56-billion global surplus, $49.7 billion of it with the United States. And in declaring that Japan must become “an internationally open” nation, the report calls for Japan to “transform economic growth from reliance upon exports to growth led by domestic demand.”

It criticizes “the tendency of (Japanese) enterprises to seek enlarged market share at all costs” and urges enterprises to draw up their own guidelines for behavior based on “a realization of international responsibility.”

It also recommends that the government become more flexible in seeking to reduce budget deficits and hints broadly that there should be more government pump priming. Critics have charged that Nakasone has concentrated too much on reducing the use of government bonds to finance the budget.

“Large surpluses in current account surpluses are rooted basically in our country’s export-oriented economic structure,” the report says. “It is an urgent task for Japan to implement an epochal policy of adjusting our country’s economic structure and plot a reformation toward an economic structure of international cooperation.”

While making a series of potentially drastic reform recommendations, the commission proposed no specific goals. It recommends, for example, that Japan sharply reduce government-supported coal production and increase coal imports but does not say when this policy should be put into effect or how much the reduction should be.

It also urges that home buyers be given tax advantages but offers no suggestion as to what kind it favors.

It calls for increased imports of some agricultural goods “while striving to improve domestic farm productivity.” But it names no products as candidates for increased imports and exempts unspecified “basic agricultural goods.”

Tax Break for Savings

It also calls for rationalizing Japan’s retailing system and reviewing “restrictions on distribution and retailing” as a means to promote more imports of manufactured goods. At present, sales space at supermarkets and department stories is restricted to protect a hodgepodge of “mom and pop” retail stores.

In one of its potentially most controversial recommendations, the commission calls for reconsideration of the preferential tax treatment now given to interest on savings accounts.

At present, every Japanese is entitled to tax-free interest on specified forms of high-interest investments up to 9 million yen ($51,429). The exemption means in effect that the average Japanese can put all his savings into tax-free accounts.

The commission also recommends higher wages, an income tax cut, shorter working hours and permission for workers to take extended vacations as means of increasing disposable income and promoting consumer spending.

The only specific goal set out in the report is a reduction in working hours. The commission says that working hours should be reduced to the level prevailing in the United States and Europe and that the five-day work week should be implemented fully. No deadline was set.