Good morning, ladies and gentlemen. It is a great pleasure to have this opportunity to address to such distinguished guests from various parts of the world at Fidelity's gathering. I am especially pleased to observe such a big shift of investors' interests back to Japan, from the days of "Japan passing" to the days of "three arrows of Abenomics". But your interests have not perhaps turned into confidence yet. So today, in my limited time, I would like to clarify the developments of changes in Japanese economy that have occurred since last autumn, what is in the pipeline, and what challenges lie ahead.

Since the introduction of Abenomics, the Japanese economy has been observing improvements in financial markets, the real economy, the corporate sector, and households. Stock prices are on an uptrend, real GDP has registered relatively high growth for two consecutive quarters since the turn of the year, business fixed investment has been picking up, and employee income has been increasing.

As you are aware, Abenomics is comprised of three arrows. The first arrow of bold monetary easing has changed people's expectations and heightened their motivation to invest. This is in sharp contrast with the period up to Mr. Abe's election as the president of the Liberal Democratic Party (LDP) last autumn, during which time people widely felt a strong sense of stagnation.

The second arrow of flexible fiscal policy has led to the formation of a 10 trillion yen supplementary budget, the first large-scale budget in quite a while, and was sufficient to change people's mindset.

The third arrow of the growth strategy aims at changing the structure of the Japanese economy through a wide range of policy menus. In an unusually early tax debate in LDP this autumn, a business fixed investment tax cut and an R&D tax cut have been determined in advance, and in the present session of the Diet, there has been discussion over legislation to implement a growth strategy, such as the Industrial Competitiveness Enhancement Act and the National Strategic Special Zones Act.

As clarified in the third arrow of the growth strategy, this policy package is not a complete version but is to be augmented and revised. The government's and the LDP's Headquarters for Japan's Economic Revitalization will be maintained, and the Industrial Competitiveness Council, the Regulatory Reform Council, and the Council on Economic and Fiscal Policy are focusing on additional regulatory reforms and economic measures toward revitalization of the Japanese economy. A revision of the growth strategy is scheduled for around June of next year, and both the government and the LDP are working to that end.

More than 20 years have passed since the bursting of the bubble, and the Japanese economy has been mired in deflation for nearly 15 years. During this long period, we have to admit that we have not responded sufficiently to an increasingly globalized and borderless world economy, and to the demographic changes of a very low birth rate, aging, and a declining population. Therefore, the problems the current Japanese economy is facing cannot be solved overnight.

The issues Abenomics has to tackle and solve are wide-ranging. They include reforms not only of the structure of the Japanese economy, industries, and society, but of more deep-rooted values such as the culture, nature, and climate of the Japanese economy and society. They also include reforms that do not directly relate to the economy, such as reform of governance in universities. Of course, the needed adjustments of the domestic industrial structure associated with the Trans-Pacific Partnership (TPP) Agreement are also going to be profound. As the wording "Japan's lost two decades" suggests, we need to accept that it will take considerable time to resolve problems that have built up over a long period.

Having said that, what is important is how quickly we must resolve these problems. As Prime Minister Abe stated in his policy speech in the autumn session, "our only alternative is to proceed, without hesitation, down the road we have chosen to take" which indicates that we have no choice but to move forward even if it is difficult or in the face of strong resistance.

Let me give you one example of such case when we, from ruling party side, had to intervene in the process of formulating the bill for National Strategic Special Zones. In the process of preparing the bill, despite the fact that the content of regulatory reforms was still at a preliminary stage, resistance from regulatory ministries as well as industries concerned, was quite fierce. The content of the bill eventually became in line with the concept laid out by the private sector members of the Industrial Competitiveness Council, but only after the LDP's intervention in the government's bill formulation process. As seen from this example, our road ahead will surely be a bumpy one. Nevertheless, we must fervently continue to move forward.

In May, one month prior to the government's growth strategy, the LDP published its interim proposals, namely, the LDP version of a growth strategy. While many of the proposals were incorporated in the government's growth strategy, there are some important policies that were not officially taken up in the government's policy package but have been proposed as complementary measures based on an agreement with each ministry concerned, and that have gradually been put into effect. In particular, the LDP is tackling important medium- to long-term challenges that relate to the culture, nature, and climate of the Japanese economy and society.

The greatest mission of Abenomics is to take the intrinsic potential of Japan and the Japanese people and aim toward the revival of a strong Japan. In other words, improve the economy's "metabolism" and regenerate a healthy and active Japan. Why has the Japanese economy been stagnant for such a protracted period and lost its competitiveness? Why has Japan, which in the past marked high growth rates while enjoying high profitability and high productivity, tumbled into a situation of being labeled as having had a lost decade or two, and of suffering from a sense of strong stagnation? Such questions lead us to consider the importance of "metabolism" in the economy.

There are several intrinsic questions that need to be answered. Why is it that, in Japan, companies that lost competitiveness and have low profitability and low productivity have yet been able to survive as they are? Why, in Japan, are both new business startups and old business exits quite stagnant? By contrast, why is it that rapidly growing companies, examples of which we see overseas in Microsoft, Apple, Google, and Facebook, and so on do not emerge in Japan? Giving answers to these questions is a mission of Abenomics.

One answer may be that there were plenty of stumbling blocks that hampered Japan from realizing its potential. If that is the case, we have no choice but to remove them one by one, and re-establish an environment in which Japan will be able to exert its potential again. We have already set an agenda, and have been in the process of working together with our government to remove those stumbling blocks.

In that regard, PM Abe declared in his speech at the New York Stock Exchange in September that he would like to turn Japan into "an entrepreneurial powerhouse", and suggested that the government will put emphasis on nurturing venture businesses. This is an important change. Promotion of new startups is promotion of employment, and it is also an important policy challenge for labor mobilization.

To realize its potential, the government's involvement in the private economy needs to be reduced. First, regulatory reform is required. Our prime misister declared that "regulatory reform is the centerpiece of Abenomics," and we are now in the process of constant regulatory reform while also putting emphasis in areas such as agriculture, medical care, and labor policy, areas that have not been addressed sufficiently in the first package. Of these, agriculture is bound to go through drastic reform in the coming years because of the TPP. The National Strategic Special Zones are places in which to experiment with such regulatory reform. We must make a breakthrough back to competitive Japan again. Although this takes energy, we must carry it out.

Japan is a country of indirect finance, and quality and nature of the economy and industries are often determined by banks' lending policy. "Procrastination" with regard to troubled companies' problems has long been a prevailing issue concerning banks and was one of the major reasons for the Japanese economy's low metabolism, as seen in the survival of zombie companies. In May, the LDP agreed with the Financial Services Agency (FSA) upon encouraging a shift in banks' lending policy toward more emphasis on workout and restructuring, as well as new business startups. Eventually, the FSA drastically revised its financial monitoring policy in September and is steadily making efforts to change banks' strategic management and lending policy. The FSA's stance to back up corporate restructuring and business creation and startups has become increasingly clear.

Japan Air Lines' bailout implemented by former government made it clear that, without explicit principles based on consistent competition policy in the case of government bailout, market conditions for competition would be distorted. For the purpose of shifting government�es old style "discretionary industrial policy" to more transparent competition policy, we submitted a bill to the Diet last Friday to secure a level playing field. Preparing for the possible future government bailout case of private companies, the draft bill requires the Fair Trade Commission (FTC) to establish a guideline the government should comply with, and to issue a reminder when there is an off-the-guideline assistance by government that adversely affect the fair competition.

It is crucially important for Japanese companies to have better corporate governance. In order to have companies that can discipline themselves and exert fairness, as well as high productivity, high profitability, and high capital efficiency, corporate governance is vital.

In this regard, government is planning to submit a draft bill that is supposed to further encourage companies to introduce independent directors on the Board of Directors, and we have to make sure the proposed bill is effective enough.

In addition, to resolve the cross share holding structure, which hampers the effective functioning of corporate governance, and to address share holdings by banks, which tend to behave as silent shareholders, I think it is preferable to reduce or even prohibit the share holdings by banks for better governance of borrowers.

Furthermore, in order for institutional investors such as insurance companies and pension funds to become capable of influencing companies through active and sound dialogue, as well as possible execution of shareholders' rights, the FSA is working on "the Japanese version of the Stewardship Code" and proposals will be coming out by the end of this year.

Due partly to the request from the LDP, a meeting of a panel of experts has been established within the government, and a new asset management policy through diversified investment by government funds, notably the Government Pension Investment Fund (GPIF), and more effective governance system of GPIF have been discussed and the final proposals will be announced by the end of this month. If the government fund sized at 110 trillion yen can bring about improvement in profitability upon being involved more actively in private companies' management policy, the ensuing effects on those companies' growth should be significant.

Policies comparable to all these reform policies have been boldly experimented in Germany in the early 2000's. Germany, once called "a sick economy of Europe," is now "a locomotive of EU economy." It was Chancellor Schroeder of SPD who brought the drastic change. Next month in Tokyo, we are inviting Mr. Schroeder to a panel discussion. We should like to know how his government carried out reforms that brought pain to the power base of the government, through labor policy reform, social security reform, corporate governance reform, financial and capital market reforms, which eventually brought about economic revival. Mr. Schroeder resolved the cross share holding by abolishing capital gains tax thus enhancing the functioning of corporate governance. He also promoted a pre-packaged type of resolution, and instituting labor law reform to facilitate labor mobility. It is often said that current Chancellor Merkel has been benefiting from the fruits of the painful reforms carried out by Mr. Schroeder.

Now that time is running out, let me conclude my remarks by laying out some more challenges that face us.

Through various reforms, we are now projecting our potential growth rate which is now as low as about 0.7 percent, going up towards 2 percent by 2020.

In order to achieve that goal, and given the declining population, we will have to contemplate the possibility of accepting more foreign workforces in near future, with high quality and high technological expertise, besides encouragement of labor participation of female and elderly and, of course, a drastic productivity growth.

Achieving a high productivity growth, especially in the non-manufacturing sector, is another big homework.

Attracting the best human resources from all around world is a prerequisite for growing economy. Reform in education and R&D environment, including governance reform of universities, is crucially important for more innovative, higher value added society. We are hoping to see at least 10 universities among global 100 in 10years from only 2 universities today.

Of course, fiscal consolidation must be addressed, but we have to make sure that an economic growth is the most important prerequisite for meeting the government's target of "halving primary deficits by 2015 and achieving primary surplus by 2020". It is also critical to curtail social security costs and to streamline government spending. In this sense, I would propose for "Abe administrative reform" following "Hashimoto administrative reform" to minimize the tax burden of general public. What is important is not an organizational reshuffling but a re-definition of government itself.

Developments under Abenomics have been encouraging so far. But there is no room for complacency. We are well aware of the challenges that lie ahead of us. And we are committed to revitalize the Japanese economy. Such delivery is what the public expects from us, the lawmakers, and thus it is our responsibility to accomplish needed reforms.

Thank you for your attention.