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CNBC Transcript: Japanese Prime Minister, Shinzo Abe

Following is the transcript of an exclusive interview with Japanese Prime Minister Shinzo Abe. The interview was conducted by CNBC in partnership with Broadcast Satellite Japan and broadcast on CNBC on 16 May 2017.

All references must be sourced to CNBC.

Interviewed by Akiko Fujita, Correspondent, CNBC and Tatsuo Yamakawa, Broadcast Satellite Japan.

Tatsuo Yamakawa (Broadcast Satellite Japan): Let's talk about the missile launched once again by North Korea yesterday (Sunday) morning. You're one of the advocates that it is meaningless to have dialogue for the sake of dialogue. Perhaps accurately conceived by yourself to be so, it is not a simple task at all to send North Korea towards the process of denuclearization. On that point, I feel that there is a need for a new dimension of approach, this situation. There is even a new president elected in South Korea. And so is the case for the United States.

What do you think will be your approach from now on, Mr Prime Minister? Let us have your opinion.

Shinzo Abe: Yesterday despite the strong warning issued by the international community, again they have forced the launch of a ballistic missile. Since the beginning of the Kim Jong Un regime, since last year for one year alone, they have launched more than 20 ballistic missiles which is more than the total number of ballistic missiles launched during the Kim Jong Il regime. So it is indeed very clear that the threat coming from North Korea's missile and nuclear program is now entering into the new stage. That is my recognition. For the past some years, during the time of the Obama administration, under the notion of strategic patience, the international community has increased the pressure inclusive of the United Nations resolutions, however, unfortunately, North Korea never stopped their ambition of a nuclear development. President Trump says all options are on the table. He is demonstrating this position both by words and by action. We regard this highly. So going forward, we have to continue to have close coordination and collaboration with United States and Korea and also China is very important in this domain inclusive of Russia as well, we would like to make our efforts so that we will be able to radically change the policy of the Kim Jong Un regime.

Akiko Fujita (CNBC): The Trump administration has said that if North Korea conducts another nuclear test, "pre-emptive military strikes" cannot be taken off the table. Would you support that move?

Shinzo Abe: We are trying to urge North Korea to abandon their nuclear development program. To that end, the international community has increased its pressure upon North Korea. We would like to resort to diplomatic and peaceful means in resolving this situation and I think on this point, U.S. and Japan share the same views. However, we are not pursuing dialogue for the sake of dialogue. We must firmly and solidly stand upon the principle of action for action. That is the principle with which we would like to approach the situation.

According to the North Korean state media, as long as the United States continues its current policy, Kim Jong Un has ordered increases in the production of nuclear weapons and other offensive means. We may see more displays of provocation from North Korea. So the important thing is that we continue to closely coordinate with the U.S., Korea, China and Russia to discourage provocations from North Korea. Should North Korea conduct additional nuclear tests, then Japan would seek additional sanctions through fresh UN Security Council resolutions.

Akiko Fujita: If the U.S. decides to move forward with a military strike, to what extent have you gotten assurances that Japan will be consulted before taking any action?

Shinzo Abe: I would like to refrain from answering any hypothetical questions but I will say this. Japan and the United States are maintaining close coordination and collaboration at all levels.

Tatsuo Yamakawa: Firstly, there has been the mention of the six-party talks led by Russia, China and includes the new administration of South Korea. You have said that there is no meaning in having dialogue for the sake of dialogue. Supposing the Trump administration of the United States also decides to go towards the direction of dialogue, what approach will Japan take?

Shinzo Abe: We know President Trump said that he is prepared to meet with Chairman Kim Jong Un under appropriate circumstances. However, Press Secretary Mr Spicer said that the conditions for that have not been fulfilled and it is not time to go into the process to determine the conditions to enable the direct talks between the two leaders. It is too premature and therefore he said that it is not likely that such a talk between the two leaders to be realized. This is about the summit talks between U.S. and North Korea. In terms of six-party talks, unfortunately till this date, six-party talks did not produce any outcome of any significance, even after repeated talks. So despite the efforts, North Korea has advanced their nuclear and missile capabilities. That's the reality. We are not interested in dialogue for the sake of dialogue. The six-party talks should not be used as a tool for North Korea to buy time to develop their nuclear capability or to gain more attention. I do not think that it is the proper timing to go to the six-party talks so I may repeat what I have already said, we have to exert proper pressure by the international community to North Korea to create a situation in order to entice North Korea to change their position and come up with a very sincere attitude toward the current situation.

Tatsuo Yamakawa: The new South Korean president is positive on talks between Japan-China-Korea. Various coordinations seem to be in place. Communication is of course very important. In that respect, the summit talks between Japan, China and Korea, this time to be held in Japan in June, is to go ahead without waiting for other schedules. There is also the Sicily Summit where many leaders will gather. You will be meeting various top characters on many of these occasions. Considering that communication that you will be involved in will be wide-ranging, give us a glimpse of what is on your mind, Prime Minister Abe?

Shinzo Abe: On the occasion of G7 Taormina Summit I wish to have a talk with President Trump. As you know, I have met with President Trump in February and since then inclusive of the North Korean issues I have had four (times) phone conversation with him. As you know, there is mounting tension we observe in the Asia Pacific region, And precisely because of the situation like this, we need to have close coordination and communication with President Trump and I wish to do that on the sidelines of the G7 Taormina Summit and exchange our views on the North Korean issue. In July in Hamburg, there is going to be G20 summit. President Xi Jin Ping of China as well as President Moon Jae In of Korea will be attending this summit and therefore, I would like to conduct respective summit talks with these leaders. Now we are serving as the Chair of Japan-China-Korea Summit. Unfortunately, Korea has been in such a situation as we all know and therefore, the Japan-China-Korea Summit has been curtailed. However, as I spoke to President Moon Jae In over the phone, we would like to have the tripartite summit in Japan as early as possible. We would like to conduct Japan-China and Japan-Korea leaders' meetings then.

Akiko Fujita: Until recently, you said that "TPP without the U.S. has no meaning". But Japan is now moving forward aggressively on a TPP without the U.S., "TPP-11". What prompted the change?

Shinzo Abe: What we wish to do with regard to the TPP is to lead the discussions as to the best approach without ruling out any options, based on our momentum and in close coordination with countries in this region. The last several years the 12 countries have worked hard in order to establish rules of free and fair trade for the development of the region as a whole. We have finally come to an agreement of the rules of free and fair trade.

We hope to utilize that agreed framework. Unfortunately, the U.S. has declared withdrawal from the TPP. Since we have come thus far, we would like to capitalize upon the results of our long years of efforts. So I think Japan must now take on a leadership role and move the discussion forward. During my visit to the U.S. for talks with President Trump, and various other occasions, I have discussed the economic and strategic benefits of TPP. We have agreed that Japan-U.S. should lead the efforts to establish fair and free trade regime in Asia Pacific. In the beginning of this month in Canada, there was an official level meeting of 11 countries and we agreed to move the discussions forward so that the TPP will not lose momentum. In the upcoming TPP ministerial meeting in Vietnam, I wish to seek the solidarity and the unity of the 11 countries so that they can come up with a clear direction of where we want to go from this point onward. I believe the United States understands that Japan will be moving the TPP forward with 11 countries.

Akiko Fujita: You've mentioned that it's important for Japan to take the leadership role in moving forward with TPP-11. Is the aim, the goal, to eventually bring the U.S. back into TPP? Is that your thinking?

Shinzo Abe: As we recall, the beginning of all activities of TPP, it was the United States which played a central role in leading the discussion and since then, U.S. and Japan led the initiative on the discussion of TPP. So it is a fact that the 11 other countries other than the United States have made their judgment on the assumption that U.S. will be in TPP. However, in consideration of what is the best step for us to take at this juncture, it is important that 11 countries are united so that we can come up with the clear direction of where we want to go from this point onward. Since U.S. understands the importance of having free and fair trade rules, by all means our strong wish is that U.S. will return to TPP.

Tatsuo Yamakawa: About US-Japan economic discussions, we know that some days back there was also an announcement of the 100-days US-China plan. It seems that China has been researching much of what Japan has been doing in the past. What will the likes of the US-Japan employment growth initiative as well as others? With regards to these, what will the approach be like and how will U.S. and Japan initiate these, and what kind of responses have there been with regards to the schedule?

Shinzo Abe: On the 10 of Feb when I had the summit talk with President Trump, we agreed on creating a framework for the economic dialogue between Japan and the United States under the leadership of Deputy Prime Minister Aso and Vice President Pence. Based upon this agreement recently, there was a kick off meeting held between them on the occasion of Vice President Pence's visit to Japan for creating a framework for the dialogue. It was decided that by the end of this year, there will be a second round of meetings. Especially the point is that we would like to enhance the economic activities between Japan and the United States based upon the trading and the investment rules. Together with that, both parties agreed that with U.S. and Japan as the cornerstone we will promote high level rules of free and fair trade covering the entire region of Asia Pacific. In addition we will have sectoral cooperation approaches in the domains of high speed rail, infrastructure, energy and so forth. So we will take up various themes where Japan and the U.S. can cooperate so as to enhance the economic relations between the two countries in a multifaceted way. In the past, friction was the word symbolizing the economic relations between the two countries. However, now we are living in the day and age of where no one party will make just a one-sided gain or a one-sided loss. With the cooperation, both parties will benefit from enhanced economic relations. I think that through the dialogue, the two countries will share such recognition.

Tatsuo Yamakawa: There has been mention of these one-on-one summits. I would like to know that if at some point in time supposing if the Trump administration takes a positive stance on AIIB, what will Japan's position be?

Shinzo Abe: On the question of AIIB, I believe the posture taken by Japan and the United States is basically the same. As of now Japan and the United States are both not party to the organization of AIIB. Why are we not participating in that organization? First of all, there remains the issue of whether impartial governance can be established. Secondly, there is the issue of the sustainability of debt servicing on the part of the borrowing counties and whether the societal and environmental impact are duly considered. As long as these issues continue to be unresolved, we do not see ourselves taking part. It therefore follows naturally that if these questions are resolved, we could consider the matter in a positive vein of thought. We are closely watching how the AIIB is being operated and I think that U.S. is standing on the same position. So I believe that the assessment of the concerns I expressed regarding AIIB is shared by United States and Japan on which we will maintain close coordination and communication between the two.

Akiko Fujita: Let's talk about Abenomics. Since becoming Prime Minister, you have slashed the corporate tax by seven percent, reformed the corporate governance code, even delayed the sales tax hike. But Japanese corporations have not pushed through meaningful wage increases. What more can you do?

Shinzo Abe: The unemployment rate has come down to 2.8 percent. In terms of the ratio of job offers versus job seekers, it is above the number of one in all prefectures across the board for the first time in Japan. In terms of the regular workers, the jobs have increased by nearly 800,000, so in this situation, if you want to recruit good human resources, you will have to improve your conditions of hire. Fortunately for the last four years consecutively, we were able to increase the wage levels. Basically, the momentum for wage increase is being sustained. We used to have an expression called base-up or across the board salary increase and this phrase was almost forgotten in the recent past until we came back to power. However, now this has revived and been in place since then. However, with companies enjoying a maximum level of profit, it is a fact that there are voices demanding further wage increases. Now considering the tightness happening in the labor market, I think there will be gradual increase of wages as demanded by market pressures. In recent years, the so-called "Spring Offensive", that is the overall campaign for increasing the salary levels of the workers in Japan, sometimes sarcastically noted as being created and prepared by the government. It is a fact that the government took the initiative in leading wage hikes in the past and the companies followed the lead. However, I believe we are finally close to realizing the situation that if you want to recruit good human resources, you really have to improve the wage conditions or fail to hire anyone suitable.

Tatsuo Yamakawa: Every June is the revision of the administration's growth strategy. What are the highlights for this year?

Shinzo Abe: During the Abe administration for the past four years, we worked so hard to grow our economy with three main pillars. Against the criticism that the economy would not grow where the population is declining, we were able to achieve 9.5 percent growth of nominal GDP (over the course of the Abe administration). Among the "three arrows", structural reform is of the paramount importance. There were certain areas which were regarded not possible for any reforms, such as power, gas, agriculture, regenerative medical care or corporate tax. We acted upon the reform on these areas which have for years stood stagnant.

Going forward, with the utilization of artificial intelligence, Big Data and IoT, we want to overcome the challenges coming from an aging society with low fertility. Well, I would say precisely because we live in a greying society with low fertility rate, we have already accumulated data and with the use of artificial intelligence we will make good use of the Big Data that we have. Thereby, we can contribute to other countries and regions which may suffer from the same kind of challenges. So this is what I call Society 5.0 which I wish to realize. For example, let me talk about the medical field. With the use of the Big Data and AI, we can shift to health management and preventive medical care and encourage those dependent on medical and nursing care to become more self-supporting. And there is the field of tele-medicine which we would like to encourage through revised medical fees. We can also make use of robots and sensors so that the caregiver's burden can be alleviated. Another example would be autonomous driving and drones. These are the new technologies which were not envisioned in the conventional regulations so we will create a new system where such new technologies can be speedily introduced on a trial basis. It is so called a regulatory sandbox which will be introduced to national strategic special zones and to this end we are presenting the bill to the current session of the Diet.

Tatsuo Yamakawa: You have made mention of "Society 5.0" when speaking about growth strategy. Is it correct to say that you consider this as some kind of catch-phrase?

Shinzo Abe: Among the many conceived notions of the 21st century, there is the notion called Industry 4.0. As for our concept of Society 5.0, it is really about solving problems. With the emphasis on solving societal issues, and from the perspective of enriching the lives of people, Society 5.0 will go down as a keyword.