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 Abe, who took office 18 months ago pledging to end persistent
deflation and generate sustainable growth with a trifecta of
monetary, fiscal and reform steps, will on Tuesday deliver the
latest instalment of his so-called "Third Arrow" of long-term
economic policies.
The measures, many of which have already been leaked or announced by
officials, are likely to receive muted applause from financial
markets and experts, who say the package is a step in the right
direction towards vital structural reforms but want to see how the
measures are fleshed out and implemented.
"I'm starting to be almost a bit of a 'glass half-full' guy. Abe is
continuing to talk the right talk," said one former U.S. official
who has seen many past Japanese reform packages that promised much
but failed to deliver.
"It isn't a 'Big Bang' but it is a lot better than some things I've
seen in the past. But he still has to deliver."
Among the steps outlined so far is a future cut in Japan's effective
corporate tax rate - among the highest in the world - to below 30
percent over the next several years, and a promise to reform the
$1.26 trillion Government Pension Investment Fund in ways likely to
reallocate more money to the stock market.
In a nod to the need to strike a balance between stimulating growth
and reining in Japan's massive public debt, the tax plan will seek
to offset the cuts by broadening the tax base.
Difficult but key details of many steps, such as the tax cuts, are
likely to be left to be worked out later. Several bold but
politically contentious proposals, such as for labour market and
agriculture reforms, were watered down or omitted as a result of
discussions among myriad and conflicting interests.
ABENOMICS FATIGUE?
Bank of Japan Governor Haruhiko Kuroda called for bolder efforts to
raise the economy's growth potential, but said meeting the
government pledge of boosting potential growth to 2 percent from
around 0.5 now was "ambitious but not impossible".
"Coming up with growth strategies is a key challenge for Group of 20
members, so Japan must make further efforts on this," Haruhiko
Kuroda told a meeting of business executives.
By dribbling out key elements of the package in recent weeks, the
government hopes to avoid the disappointment that led to a sharp
drop in Tokyo share prices when Abe announced the first tranche of
his "Third Arrow" growth strategy last June.
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Some market players appear to be suffering from what one expert
called "Abenomics fatigue".
"I wonder how many third arrows they plant to shoot. Are they going
to do this every year?", said Ayako Sera, a senior market analyst at
Sumitomo Mitsui Trust Bank.
Crafted over a year through discussions in at least 20 advisory
committees reporting to four main government panels, the package
appears to contain something for everyone, but not enough for
anyone. Even a likely amendment to a law regulating dancing in
nightclubs has to be "studied" first.
Also included in the package are steps to boost the role of working
women to address a shrinking workforce; raise the number of highly
skilled foreign workers and expand a controversial foreign trainee
programme; tackle agricultural reform; boost productivity through a
"robotic revolution"; and target the healthcare sector for growth.
Discussions on easing labour market rigidities to boost productivity
looked set to yield a plan to end paid overtime for workers earning
the equivalent of at least $100,000 per year - only about 4 percent
of the workforce. The touchy question of whether to make it easier
to fire workers, a step advocates say is vital, is likely to be left
for later debate.
"Bigger steps are needed such as facilitating labour turnover and
boosting the sheer number of (people in the) workforce to cope with
the issue of dwindling population," said Naoki Iizuka, an economist
at Citigroup Global Markets Japan.
"Abe is so far taking a step in the right direction but I don’t give
it a wholehearted thumbs-up," Iizuka said. "Abe’s 'Third Arrow'
growth strategy seems to me like a dart not an arrow. I hope he will
come up with bolder plans ahead."
(Additional reporting by Hideyuki Sano and Leika Kihara; Editing by
Alex Richardson)
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