Finance Minister Michael Cullen received a range of briefings on the Japanese economy during his visit to Tokyo on Monday.

He met with senior representatives from Morgan Stanley and Nomura Securities, State Minister for Financial Services, Mr Yanagisawa, the Governor of the Bank of Japan and the Vice Minister for Finance and with a range of political and economic experts at a dinner hosted by the New Zealand Embassy in the evening.

"There seemed to be a broad agreement that the reform programme proposed by
new Japanese Prime Minister Koizumi offered the best chance in many years
for lifting Japan out of its decade long growth slump," Dr Cullen said.

"It is clear Mr Koizumi enjoys unprecedented political popularity. But he
faces very large political problems in carrying through the reforms he has
promoted.

"At the moment it seems most Japanese are expecting some painful
adjustment. But whether it is understood how long and painful the process
of reform may be is perhaps not well understood. This may make it very
difficult to maintain a strong consensus in favour of reform.

"There is a real risk that decisive action to cure the bad debts problem
and public sector inefficiencies could worsen the present deflationary
tendencies. There still seems to be a lower level of concern about
deflation on the part of the relevant authorities than I would expect.

"Not all of this is necessarily bad news for New Zealand. As Japanese real
wages are squeezed people are looking for cheaper alternatives and import
penetration is increasing.

"Whatever the case, New Zealand needs to intensify its efforts to increase
its market share in Japan and work on giving more substance to the Prime
Minister's aim of putting our relationship with Japan on a higher level,"
Dr Cullen said.

Ends

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