TOKYO, June 5: Prime Minister Shinzo Abe pledged to boost incomes by 3 percent annually and set up special economic zones to attract foreign businesses in the latest tranche of measures aimed at boosting growth in the world’s third-biggest economy.
Rising incomes are vital to the success of Abe’s ambitious goals to end years of entrenched deflation and decades of economic stagnation during which China sped past Japan in the world’s economic rankings.
The Bank of Japan’s sweeping monetary expansion, announced in April, aims to achieve 2 percent inflation in less than 2 years. Analysts say wages will need to rise faster to put consumer prices and growth on a sustainable upward track.
Abe is also wary of appearing to benefit corporations over consumers ahead of a July upper house election.
‘I think the most important target to achieve is per capita gross national income,’ Abe said in a speech on Wednesday, his latest to unveil steps aimed at engineering long-term growth.
‘That’s because the aim of our growth strategy is nothing other than to create jobs for enthusiastic people and raise take-home pay for those who are working hard.
‘In short, to let households benefit. That’s the point.’
The growth strategy is the ‘Third Arrow’ in his ‘Abenomics’ prescription to spur sustainable growth. The first two ‘arrows’ are hyper-easy monetary policy and big government spending.
The popular premier, who took office in December after his party’s big election win, said he would target annual gains of 3 percent or more in gross national income per capita. That would be an increase of 1.5 million yen ($15,000) over 10 years from around 3.84 million yen in 2012.
Financial market investors have not given up hope that Abe’s policies will end the country’s prolonged economic stagnation, but a note of caution has crept in since Tokyo share prices began to slide on May 23 after months of heady gains.
The stock price falls are also a worry to Abe’s government ahead of a July 21 upper house election that his party needs to win to cement his grip on power.
The benchmark Nikkei stock average soared 53 percent from the end of 2012 to a 5-1/2-year peak, but has lost around 15 percent since then as of mid-day on Wednesday. The slide continued after Abe spoke.
The yen strengthened to 99.79 to the dollar after trading around 100 yen against the dollar in the morning session, having fallen to 4-1/2-year low of 103.74 yen late last month.
Some analysts said that it was hard to see how the income gain target could be reached – especially if, as expected, the growth plan eventually includes steps that would make it easier to use temporary workers, who tend to be lower paid.
‘It is hard to see how that can be reconciled with income growth,’ said Sophia University professor Koichi Nakano. ‘His government is very good at PR strategy … but it really does look more like a campaign platform rather than anything worthy of the name of economic policies.’
DEREGULATION
Abe added another set of targets to those he has already announced, aiming to boost power-related investment one and a half times to 30 trillion yen over the next decade and double the balance of inward foreign direct investment to 35 trillion yen by 2020.
But critics question if these goals are achievable.
‘The government has come up with rosy numerical targets but I doubt any of these could be met or that such a targeting policy could work out as planned,’ said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. ‘After all, the government cannot control every economic activity just like the central bank cannot control long-term interest rates.’
“Abenomics’ should not lean toward a planned economy and market players are attaching greater importance to deregulation, not these numerical targets.’
The special economic zones, to be created in Tokyo and other big cities, are expected to be allowed to introduce corporate tax cuts and ease regulations to attract businesses.
Abe also said the government would allow the sale over the Internet of most over-the-counter drugs as part of efforts to mobilise the Internet for growth.
Abe has said deregulation is the top priority for boosting growth but the final package of steps – to be approved by the cabinet on June 14 along with macro-economic guidelines – is unlikely to include bold reforms in areas such as labour mobility and nationwide corporate taxes.
Japan has already vowed to target private-sector investment of 70 trillion yen annually, the level before the 2008 financial crisis and up about 10 percent from current levels.
The government also aims to triple infrastructure exports, such as bullet trains and nuclear plants, to 30 trillion yen.
It wants to double farm exports by 2020 and has set a goal of having 70 percent of exports covered by free trade deals by 2018, compared with around 19 percent now, by pushing participation in the U.S.-led Trans-Pacific Economic Partnership (TPP) and other trade deals.
($1=100 yen)
(agencies)
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