TOKYO Prime Minister Shinzo Abe unveiled a package of measures on Tuesday aimed at boosting Japan's long-term economic growth, from phased-in corporate tax cuts to a bigger role for women and foreign workers, but applause from investors is likely to be muted after Tokyo backpedalled on bolder reforms.
Japan's economy has shown signs of revival since Abe took office 18 months ago pledging to end deflation and generate sustainable growth with a triple-pronged strategy he called his "Three Arrows", but policymakers acknowledge that more must be done to cement the recovery after two decades of stagnation.
"There are no taboos or sacred cows for my growth strategy," Abe told a news conference after the measures were approved by his cabinet.
He stressed that a "positive cycle" was emerging as rising corporate earnings lead to higher wages, but that the recovery had yet to spread to the regions.
Experts say Tuesday's update of the so-called "Third Arrow" of Abe's strategy to revitalise Japan - most of which had been trailed in advance - is a step in the right direction, but want to see how its reforms are fleshed out and implemented.
The first two "arrows" are massive monetary easing, which has helped push up asset prices, and fiscal spending to stimulate demand.
Private economists surveyed by Reuters forecast that the growth strategy could boost Japan's potential growth rate by 0.2-1.5 percentage points from its current level of around 0.5 percent. But they noted that it would take time.
"Even after the government growth strategy is announced, various legislation must be enacted and it will take time for companies to begin to act. Therefore, it will be 10 to 20 years before the potential growth rate rises," said Kenji Yumoto, vice chairman of the Japan Research Institute.
Yumoto said it was possible, but very difficult, for Japan to hit the 2 percent growth level the government says is needed to reduce its mammoth public debt.
DETAILS FOR LATER
The centrepieces of Abe's plan are 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.
The latest reform package is a welcome step for the Bank of Japan, which has called for bold government action to help sustain the current recovery fuelled in part by its massive monetary stimulus.
But many BOJ officials say the key now is implementation and Abe's commitment to meet words with action, so that companies feel confident enough to boost investment for the future.
BOJ Governor Haruhiko Kuroda, a former senior finance ministry bureaucrat, has also warned against cutting Japan's corporate tax rate without securing an alternative source of tax revenue, given the country's massive public debt.
In a nod to that need for balance, the tax plan will seek to offset the cuts by broadening the tax base.
But tough, key details of many steps were left to be worked out later and several bold but politically contentious proposals were watered down or omitted.
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 instalment of his "Third Arrow" last June.
NOT AN "IMMIGRATION" POLICY
Earlier in the day, Abe urged the nation's business leaders to do more to boost the role of working women, a key plank in the growth strategy and seen as vital to address the shrinking workforce in one of the world's most rapidly ageing societies.
Abe's remarks came one day after a Tokyo assembly member from his ruling Liberal Democratic Party (LDP) had to apologise for heckling a female local lawmaker with sexist comments. The package also included steps to raise the number of highly skilled foreign workers and expand a controversial foreign trainee programme; boost productivity through a "robotic revolution"; and target the healthcare sector for growth.
But early bold proposals on agriculture reform look to have been watered down due to opposition from the powerful farm lobby.
And while experts say the goal of stabilising the declining population at around 100 million will be difficult to achieve, the government has gone out of its way to say moves to increase foreign workers are not an "immigration" policy.
"Considering the various difficult experiences in other countries, I think we must be cautious about accepting immigrants," Abe told the news conference.
Discussions on easing labour market rigidities to boost productivity yielded 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 was left for later debate.
"Abe's 'Third Arrow' growth strategy seems to me like a dart not an arrow," said Naoki Iizuka, an economist at Citigroup Global Markets Japan. "I hope he will come up with bolder plans ahead."