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Japan PM unveils his enhanced growth strategy

Wednesday, June 25, 2014 - 06:00

JAPANESE Prime Minister Shinzo Abe yesterday announced an "upgrading" of his New Growth Strategy, and pledged anew to deregulate and revive the world's third-largest economy through bold economic reforms.

"There will be no taboos and no sacred areas. The Abe Cabinet will break through any wall," he said.

The expanded strategy identified key areas of reform as economic deregulation, labour market reforms, taxation, foreign investment in Japan, agricultural and other trade reforms, stabilising Japan's shrinking population, boosting financial investment and improving corporate governance, along with actions such as strengthening the role of women.

At a briefing last night after the Cabinet endorsed the enhanced growth strategy, Mr Abe acknowledged that the benefits of Abenomics had yet to reach all corners of Japan, and pledged to remedy this.

With the main provisions of the growth strategy having been leaked lately, financial markets were blase about the news; Tokyo stock prices barely moved.

Obviously aware that markets had become sceptical of any early progress on the deregulation and structural reform front, Mr Abe kept stressing yesterday that his administration was bent on breaking all barriers to reform.

One of the most closely watched areas of the growth strategy is the proposed reduction of corporate taxes, which will give a boost to businesses foreign and domestic.

Mr Abe yesterday repeated his determination to cut the standard rate from the current 35 per cent to under 30 per cent. He still did not specify a time frame for doing this, but gave an assurance that the cut would not be tied to a second scheduled increase in the national consumption tax.

No decision has been made yet about going ahead with the plan to raise this tax from 8 per cent to 10 per cent next year, but he said that the government would "find the resources" to fund the corporate tax cut - and this will depend on the economy fares from hereon.

Markets worry that non-economic issues - security questions and constitutional issues, for example - could divert his attention from his ambitious agenda, but he pledged yesterday to stay the course.

Mr Abe defended his record of reform, saying that 30 bills related to economic reform had been passed in the 150-day ordinary session that just ended, and that the pace of reform would not lose steam.

Japan's economy is about to regain its confidence, he said, citing restored economic growth and inflation along with rising wages and bonuses, which are powering consumption. He conceded, however, that social expenditures would need to go up to aid certain groups and smaller businesses.

A key concern in the country is the need to stabilise the shrinking population at 100 million; experts say this will be difficult to achieve without allowing more immigration.

But Mr Abe defended his decision to focus on allowing construction and other workers to enter Japan for limited periods - likely to be extended from three years to five. Other countries have come up against problems from open-door policies, he said.

On trade, the government strategy is to quickly conclude the 12-nation Trans-Pacific Partnership (TPP) agreement. Talks are now bogged down as Japan and the United States, by far the most dominant economies in the TPP, remain at odds over issues such as access to Japan's agricultural market.

Under the New Growth Strategy, agricultural cooperatives will be urged to reform themselves over the next five years; the number of agricultural corporations will be raised four-fold to 50,000 by 2020, and the value of agricultural exports, to five trillion yen (S$61 billion) by 2030.

A Reuters report said the new growth strategy includes opening up US$30 billion in public infrastructure projects such as airports to management by private investors.

Tokyo also aims to double annual foreign direct investment to nearly US$345 billion by 2020. At 3.5 per cent of the gross domestic product, Japan's inbound direct investment is the lowest among OECD (Organisation for Economic Co-operation and Development) countries.

The Tokyo Stock Exchange will meanwhile compile by mid-2015 a Corporate Governance Code to improve oversight of listed companies. Under this, banks will have to appoint at least one outside director - a capitulation on previous recommendations from Mr Abe's party, which had called for multiple external directors for all listed companies.

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