Japan's Abe targets income gains in growth strategy

TOKYO Wed Jun 5, 2013 6:57am EDT

1 of 3. Japan's Prime Minister Shinzo Abe gestures as he delivers a speech at a seminar in Tokyo June 5, 2013.

Credit: Reuters/Toru Hanai

TOKYO (Reuters) - Prime Minister Shinzo Abe pledged to raise incomes by 3 percent annually and set up special economic zones to attract foreign businesses in the third tranche of measures aimed at boosting growth in the world's third-biggest economy.

Abe is also considering a push for public pensions and other public funds - a pool of $2 trillion - to increase returns by raising investment in equities, a government draft growth strategy showed, confirming a Reuters report.

The government will seek the view of experts and aim to reach a conclusion by autumn, the draft said. Still, such a move could face opposition from Japan's risk-averse voters.

The steps are the last batch of proposals in a growth strategy that includes measures to mobilize women in the workforce, boost private investment and deregulate some sectors. The package is set to be approved by the cabinet on June 14 along with macro-economic policy guidelines including fiscal reform targets to address Japan's massive public debt.

However, some analysts were skeptical the strategy would achieve the goals of the prime minister's "Abenomics" policy given a lack of bold steps, such as changes to promote labor market flexibility and make it easier for companies to exit dying businesses while shifting to growth areas.

Tokyo share prices fell 3.8 percent on the day, partly on disappointment over Abe's speech.

"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."

ABE'S "THIRD ARROW"

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 wary of appearing to benefit corporations over consumers ahead of a July 21 upper house election, but he is also reluctant to take bold steps that might hurt backers of his conservative Liberal Democratic Party (LDP).

"I think the most important target to achieve is per capita gross national income," Abe said in a speech on Wednesday 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 end deflation and 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.

The Nikkei's fall on Wednesday continued a slide begun on May 23, as investors turned cautious after a rally of more than 50 percent that saw the market reach a 5-1/2 year high.

The yen rose as high as 99.37 to the dollar after trading around 100 yen against the dollar earlier in the day, having fallen to 4-1/2-year low of 103.74 yen late last month.

"The comments from Abe lacked some of the detail the market had been looking for and left it disappointed," said Ian Stannard, head of European FX strategy at Morgan Stanley.

A pull back in Japanese share prices is a worry for Abe ahead of the July election, which his party is expected to win but needs to do so decisively to cement its grip on power.

HARD TO HIT TARGET?

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.

Others held out hope of more reforms down the road.

"From labor market reform to business investment and deregulation, the growth strategy is going in the right direction, but it lacks bold steps such as facilitating labor mobility, immigration and corporate tax cuts," said Masayuki Kichikawa, chief Japan economist at Bank of America Merrill Lynch. "I guess contentious issues may need to wait until after the upper house election."

Abe added more 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.

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 mobilize the Internet for growth.

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 have 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.

(Writing by Linda Sieg; Editing by Shri Navaratnam and Neil Fullick)

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Comments (6)
JapanViewer wrote:
The experts are quick to cast dispersion on Abe’s goals, but he is definitely shaking things up and that can only do Japan’s economy good, as it was stagnating at best, dying at worst.

Jun 04, 2013 11:36pm EDT  --  Report as abuse
Pdxjon wrote:
Printing money solves all issues? Ok. Then just give $100 million dollars to each and every citizen. This is ludicrous. This will only end in “The Great World Depression” as people battle over whose currency is worth less.

The American economy is “recovering” by money being hot off the presses from the fed and the interesting side affects that occur when we export our inflation to countries like japan.

Buy things that are real. If you don’t, you might as well just give up.

Jun 05, 2013 2:01am EDT  --  Report as abuse
VonHell wrote:
The guy said he is going to increase income at a nominal rate (amount of yen one guy receives) of 3% a year… aiming to increase per capita by 1.5 million yen in 10 years or about 15000 USD today
http://english.kyodonews.jp/news/2013/06/228683.html
http://english.kyodonews.jp/news/2013/06/228660.html
Interesting… japanese percapita is 46700 USD… If the dollar stays at 100 yen it represents a 32% increase in per capita income in 10 years… if we consider gross domestic product at purchasing power parity per capita, or the real power of consumption, 36200 today … it would be a 41% growth
Ofc he is promissing all in yen terms… what depending on the yen devaluation could represent nothing or just compensate inflation and yen devaluation…
Per capita is GDP/number of people or 5.8Tri USD/126Mi japanese… if the japanese population is set to fall… to this be for real (in USD terms or in purchasing power terms) we a talking about serious growth…
I dont believe it…

Jun 05, 2013 2:09am EDT  --  Report as abuse
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