Heizo Takenaka

Heizo Takenaka has long been Prime Minister Junichiro Koizumi's point man for economic reform in Japan. After Koizumi was overwhelmingly re-elected in September, he appointed Takenaka minister for Internal Affairs and Communications. In the new position, Takenaka will shift the reform battle from banks and the privatization of Japan Post (which is now assured) to other fronts, like the consolidation of eight state-run banks into a single institution. Last week NEWSWEEK's Fareed Zakaria, Christian Caryl and Hideko Takayama spoke with Takenaka in his Tokyo office. Excerpts:

TAKENAKA: Reform is very steady. That is quite clear. Two years ago no one could have imagined that Japan Post could be privatized. But now the law has been approved by the Diet, and in about two years it will be privatized. Ten years from now all the shares of the company will be sold on the market. This is a very dramatic privatization.

I do not have the recent figures. But I believe that foreign indirect investment is increasing. Please look at the transactions of the Tokyo stock market. The most important part now is held by foreign investors. So there is a lot of foreign money coming in.

I believe the BOJ should be independent in its choice of policy tools. But policy target-setting should be the prerogative of the government. Look at England: the government decides on inflation targets. In order to reach this target, the Bank of England then has the choice of policy tools. But in Japan this distinction is not so clear.

Right now we have government expenditures of 82 trillion yen and tax revenues of 44 trillion yen. It's a big discrepancy. First we should reduce expenditures and conquer deflation.

In the medium term the tax rate should be discussed very seriously. But what we should do first is reduce expenditures. The order of policy is quite important. [According to some studies], countries that raise taxes first never cut the deficit. But countries that cut expenditures [first] are successful. This is very persuasive.

The real economy is now very steady, very sound--2 percent [growth]. That level is quite comfortable for us. However, even with this steady growth, deflation is continuing. That's the problem, I think.

It's the monetary aspect. Who's in charge of the growth of the money supply? The central bank. We can't do anything about that.

We do not compete with China or India in terms of market size. We have our policy targets and they have theirs. In Japan the standard of living is quite high. The birthrate is declining, total population is declining. What is important is to sustain the growth of per capita income of the Japanese people, to sustain the standard of living. That's the policy target of this country.

We are having discussions on that issue. Since the population will start declining, some people are saying that some sort of immigration is needed, while others say that since the market is globalized, we don't need any immigrant population in this country. That discussion is continuing. I do not have a decisive opinion at the moment.

What I have learned is that scholars hate politicians, and that politicians hate scholars. But scholars should learn more from politicians, and politicians should learn more from scholars. [ Laughs ]

That's a joke. I don't want to be prime minister. In Japan we have a famous music-industry award called the Record Grand Prize. Most singers want to have this prize, but some do not. I belong to this minority.

I've been studying economic policy as a scholar. I'd like to continue to help this country as a specialist.

Heizo Takenaka | News