Japan - Domestic policy

Economic reforms have remained at the top of Koizumi's list of domestic priorities. Koizumi proposed privatizing the nation's postal savings system and rechanneling automobile-related tax revenues from their traditional funding of road construction projects to other areas where the revenue would have greater impact on growth. These reforms, while they directly addressed the source of much wasteful spending, met resistance in the legislature.

Japan's banking industry has suffered for years under a crushing debt resulting from too many bad loans. On taking office, Koizumi intended to force commercial banks to write off their bad debt. Along with this move, he proposed a fiscal discipline policy to speed up bankruptcies and provide a safety net for the resulting unemployment (100,000 to 200,000 lost jobs). Japan's deficit-spending remains huge at 128 trillion yen ( US $1.03 trillion), which amounts to 130% of GDP, the worst of any major industrialized country. Koizumi had planned to set a limit on the issue of government bonds at below 30 trillion yen ( US $241 million), but he was unable to do so. After three years in office, Koizumi's "structural reforms" were stalled and he had not been able to effect a turnaround in the economy, as stock prices sagged, real estate values plunged, and unemployment worsened. Deflation took hold and an expensive bank bailout in May 2003 spotlighted the weakness of Koizumi's financial sector reform strategy.