Prime Minister Shinzo Abe outlined on Wednesday a sweeping blueprint for rejuvenating Japan’s ailing economy with reforms meant to bring more women into the workforce, promote industrial innovation and coax cash-hoarding corporations into investing more.
The strategies Abe sketched out in a speech form the third and most important plank in his “Abenomics” platform, which so far has focused on what he calls the first “two arrows” in his arsenal: loosening monetary policy and boosting public spending. He has promised structural reforms to underpin growth in the long run as Japan’s population ages and shrinks.
“Now is the time for Japan to be an engine for world economic recovery,” Abe said. “Japanese business, what is being asked is that you speed up. Do not fear risk, be determined and use your capacity for action.”
Without an overhaul of Japan’s bureaucracy and its agricultural, industrial and labour policies, economists say Abenomics is bound to provide only a temporary boost to growth while vastly increasing the country’s public debt burden. All agree that reforms are needed to break Japan free of the deflationary malaise that has stymied growth since its bubble economy collapsed more than 20 years ago and sustain growth in the future.
Investors appeared unimpressed: the benchmark Nikkei index, which had slipped 0.3 per cent in the morning ahead of the speech, was down 1.1 per cent just afterward. The Nikkei had gained over 70 per cent since November on expectations that Abe’s program would boost growth and corporate profits, but has lost nearly 20 per cent in the past few weeks on growing uncertainty over how well the plans are working.
Abe pledged on Wednesday to raise Japanese incomes by 3 per cent a year to protect consumers’ purchasing power if the government meets its target of boosting inflation to 2 per cent within two years. However, his speech was short on details of how to achieve that aim after more than two decades of economic stagnation.
He also promised to raise Japan’s per capita gross national income by more than US$14,970 in 10 years. It now is about US$45,000 a year.
So far the government has taken only piecemeal initiatives such as loosening controls on online sales of over-the-counter drugs. Abe intends to raise private investment in roads and to set up “strategic economic zones” where private companies will be allowed to operate public facilities such as airports.
Abe has repeatedly stressed his desire to encourage more women to work by improving access to affordable child care and extending parental leave. He also has called for improved English language instruction and loosening of labour regulations that discourage job hopping. He did not discuss details of those plans in his speech.
Abe had promised to present his reform proposals by mid-June, a month ahead of an election for the upper house of parliament that his Liberal Democratic Party is determined to win – possibly assuring Abe another three years in office. But amid the recent volatility in financial markets and questions over his resolve to follow through with reforms, he has offered repeated previews of what he has in mind.
“The structural reforms are as important as the first two arrows,” Sri Mulanyi Indrawati, a managing director of the World Bank, told a recent conference in Tokyo.
Abe has made reviving the economy his top priority since taking office nearly six months ago, so far with mixed results.
The economy grew at a 3.5 per cent annual rate in the first quarter, while a weakening yen helped boost the repatriated profits of big Japanese corporations.
But despite rising costs for imported energy and food, overall prices have remained flat, and despite massive purchases of government bonds meant to pump cash into the economy, the central bank remains far from achieving its 2 per cent target for inflation.
Though most economists have given Abe’s initial efforts a thumbs-up, it is the longer-term reforms that will really count, they say.
“One thing is certain about growth policy: there is no silver bullet or panacea,” said Masazumi Wakatabe of Waseda University. “In particular, contrary to the popular view, industrial policy has rarely worked in Japan or in other countries.”
Defending Abenomics in a recent speech, economy minister Akira Amari said, “This time, strategy will be followed by action.”
“Instead of lowering the bar, this will be a growth strategy that will continue to evolve,” Amari said. “The goal is to equip Japanese industry with the strengths it needs to compete.”
Many of the reform proposals aired so far, however, are incremental, technical changes, such as providing insurance for factories leasing equipment.
Though Japan’s plan to join the “Trans-Pacific Partnership,” an Asian-Pacific regional trade pact, could provide some foreign pressure to modernize and open up protected farming and other areas, most changes would come years later, says Junji Nakagawa, an expert on the TPP at Tokyo University.
Land and tax reforms to facilitate consolidation of small farms would help, but have proven politically daunting, and the pact will not have any immediate impact even on imports of rice, which are now subject to a nearly 800-per cent tariff.
“Maybe seven or five years from now, Japanese farmers may face real competition,” Nakagawa said.