TOKYO–As global investors turn skeptical about Japan’s recovery program, Prime Minister Shinzo Abe unveiled on Wednesday an ambitious blueprint for lifting the country’s long-term growth prospects, promising a grab bag of reforms of everything from the stagnant agriculture and energy markets to new tax breaks encouraging foreign investment and venture capital.
The blueprint includes provisions that could have a short-term market impact, even if they don’t affect long-term growth-notably a recommendation to loosen investment rules for Japan’s mammoth public pension funds, allowing them to buy more stocks and shed some of their stable, but low-return, government bonds.
But the long-awaited “growth strategy”–crafted to supplement the bold fiscal and monetary stimulus that has jolted markets–dodges some of the tough decisions that many economists say are needed to fix the root causes of Japan’s prolonged slump. It includes only modest measures to make it easier for industrial giants to shrink payrolls widely seen as too swollen for current demand.
Mr. Abe’s proposals “are not enough for Japan to achieve sustained economic growth and overcome deflation,” said Hisashi Yamada, chief economist at the Japan Research Institute. “Without labor-market reform, Japan will hit a wall with growth.”
The speech comes at a sensitive time for financial markets. After a rise of more than 80% since mid-November, when Mr. Abe began his election campaign, the stock market has pulled back with a vengeance, with the Nikkei Stock Average falling 15% over the past 10 days.
“Now is the time that Japan becomes the driving force of the global economy,” Mr. Abe said in a speech delivered mid-day in Tokyo.
Mr. Abe’s so-called third arrow economic package aims to demonstrate that his closely watched Abenomics goes beyond the quick-fix first two arrows of big new public-works spending and a boost in money supply that sent stocks soaring before the recent correction. As he put it in his remarks: “The goal of Abenomics is to spread the fruit of the growth in the real economy to hard workers, not a short-sighted money game.”
Officials said the plan, if implemented, would end Japan’s decade of deflation, and lead to expansion averaging 2% a year over the next decade, more than double the pace of the past 10 years. It targets health care, medical devices, and pharmaceuticals as a major growth sector in the world’s most rapidly aging society.
It is hard to judge the likely impact, because many details-such as the size of proposed tax credits-won’t be decided until later in the year. Many items require parliamentary passage of legislation that has yet to be drafted.
Over the past decade, previous prime ministers have unveiled numerous “growth strategies,” most of which had little impact. One reason advocates give for optimism this time is that Mr. Abe appears likely to have more clout, and staying power, than many of his predecessors. His ruling Liberal Democratic Party is expected to win a landslide victory in July elections, which would give him solid control of the legislature.
While the administration will unveil the full package for the first time Wednesday, Mr. Abe announced some proposals in earlier speeches, which called for incentives to boost capital spending and double agricultural exports. His government has already taken some steps highlighted in the plan: Parliament recently passed an increase in the research and development tax credit, and has streamlined environmental rules expected to lead to approval of Japan’s first new coal power plant in 10 years.
But some measures are considerably weaker than experts had urged. A proposal to require companies to appoint at least one independent director to their boards will allow them to avoid doing so as long as they provide a public explanation. Critics say the lack of independent directors in Japan has made companies less accountable to shareholders.
The blueprint includes a detailed plan to increase “labor-market flexibility.” But rather than allow companies to quickly shed workers deemed unnecessary-a total the government estimates at 4.6 million-it does so with new regulations, such as creating more job-matching and outplacement services.
While the plan includes a range of targeted business tax breaks, it doesn’t provide the across-the-board tax relief endorsed by many business groups.
“The “third arrow” could prove disappointing with some key policies, including a nationwide cut in corporate taxes, put on the back burner,” said Tsuyoshi Ueno, a senior economist at NLI Research Institute.
Mr. Abe cast the plan as an attempt to scale back the role of government and re-energize Japanese private sector. “To trust the creativity and breakthrough strength of the people and companies of Japan — this is the role of the Abe Cabinet,” he said. “The power of the private sector is the engine of Abenomics.”
Write to Takashi Mochizuki at takashi.mochizuki@dowjones.com, Mitsuru Obe at mitsuru.obe@dowjones.com and Jacob Schlesinger at jacob.schlesinger@wsj.com
From:
http://online.wsj.com/article/SB10001424127887324423904578525063698268542.html
