TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe is set to unveil measures ranging from phased corporate tax cuts and public pension reforms to proposed dance hall deregulation, but the latest salvo from his three-pronged strategy for economic revival may disappoint some investors urging more radical steps.
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.
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.
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