TOKYO – Prime Minister Shinzo Abe outlined Wednesday a sweeping blueprint for rejuvenating Japan’s ailing economy, calling for reforms 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.
Abe acknowledged the challenge of pushing through politically difficult reforms where many others have failed.
“To achieve this will be like ‘whack a mole’,” he said, referring to the arcade game where players bash the “moles'” heads as they pop up. “There is no end,” he said.
Investors appeared unimpressed with Abe’s blueprint. The benchmark Nikkei index was down 3.8 per cent after his speech. The Nikkei had gained over 70 per cent since November on expectations that Abe’s policies 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 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.
He also promised to raise Japan’s per capita gross national income by more than 1.5 million yen ($14,970) in 10 years. It now is about $45,000 a year.
He said more spending is needed on electrical power generation and renewable energy, a dire concern for a country that lost nearly a third of its generating power when most nuclear plants were idled following the 2011 tsunami disaster.
Abe has made reviving the economy his top priority since taking office nearly six months ago, with mixed results.
So far the government has taken only piecemeal reforms, such as loosening controls on online sales of over-the-counter drugs. Abe said he 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.
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.
The so-called “wealth effect” from rising share prices has fueled a boomlet in luxury spending, but many have questioned how the vast majority of consumers will fare if prices rise and wages remain flat or falling.
Reforms need to go beyond tinkering with the bureaucracy and tackle such issues as quality of life and equity, Masahiro Kawaii of the Asian Development Bank Institute told a conference organized by the Cabinet office last week.
Though he and other economists participating in that conference gave Abe’s initial efforts a thumbs-up, it is the longer-term reforms that will really count, they say. equipment.