Prime Minister Shinzo Abe on Wednesday revealed his set of structural reforms to boost the economy, ranging from creating special economic zones to easing rules to set up international schools, but failed to impress market players as the Nikkei dropped sharply.
In a speech outlining the third “arrow” of his growth strategy, Abe also set a new goal to boost the country’s per capita gross national income by more than ¥1.5 million in 10 years, but left out the details of how to achieve the ambitious target.
The “three arrows” of his economic strategy are “designed to stimulate the private sector’s creativity in doing business and start global innovation in Japan,” Abe said in his speech at a hotel in Tokyo.
“Deregulation is the first and foremost core of growth strategies,” he said.
Abe touched on creating special economic zones in Japan that can provide international business environments on par with London and New York.
Regulations on floor-area ratios will be eased to allow for more high-rise residential buildings in the special zones to attract more foreign businesspeople, Abe said.
Regulations will also be eased to make it easier to set up international schools and allow foreign doctors to practice medicine, he said.
Many prefectures now require that school operators own the land and facilities for their institutions. Such requirements may be eased, government officials said.
Market players were quick to show their disappointment after the text of Abe’s speech was made available in the early afternoon. The Nikkei 225 fell 518.89 to 13,014 at the day’s closing.
“There wasn’t any positive surprise in Wednesday’s announcement,” Hideo Kumano, chief economist at Dai-ichi Life Research Institute, told The Japan Times.
Kumano downplayed the impact of Abe’s speech on the Nikkei, saying shares have been trending downward recently. But he agreed the speech lacked vigor or tangible policies.
The key for Abe now will be nailing down the tax incentives to boost domestic business and specifying areas of deregulation when his Cabinet finalizes its economic growth plan, Kumano said.
This is what he is expected to do at a news conference after his Cabinet approves the economic growth strategies on June 14.
“(On Wednesday), Abe just gave basic viewpoints on his economic growth strategy. It’s natural he didn’t reveal many new ideas in the speech,” a senior government official said.
In preparing the growth strategies, the government is particularly sensitive to the reactions of foreign investors, who remain skeptical about Japan’s economic future, the official said, speaking on condition of anonymity.
The government thus will focus on measures to attract more foreign businesses, tap more female workers as the nation’s working population declines and provide more tax breaks for businesses in Japan, the official said.
The proposals revealed Wednesday included legalizing the sale of nonprescription medicines online.
Abe also said the government is ready to assist the private sector in the medical and infrastructure-building industries to boost innovation in the fields. The retail electricity market will be liberalized as well, he said.
Since taking office in December, Abe has succeeded in easing the historic appreciation of the yen while giving the Nikkei index a substantial jolt.
The “first arrow” of “Abenomics” was centered on monetary policies, which effectively pushed the Bank of Japan to carry out massive quantitative easing measures. The second was focused on pump-priming fiscal measures.
Many economists point out Japan is unlikely to sustain the momentum of “Abenomics” policies without measures to spur demand in the private sector — the government’s third arrow.
So far, Abe has pledged to revise the education system and create globally renowned institutions, help working mothers by increasing the number of day care facilities and expanding Japan’s export of infrastructure to growing economies overseas.
However, stock markets have cooled in recent weeks, with the Nikkei index dropping over 2,000 points since its peak in May.
Some pundits blame the slowdown in the U.S. and Chinese economies, while others warn that Abe’s run of success might have come to an end.
Third pillar of ‘Abenomics’
● Sales of all nonprescription drugs on the Internet will be permitted under rules that ensure consumer safety.
● Strategic special zones will be set up to promote deregulation.
● Electricity-related investment will be raised to ¥30 trillion within 10 years.
● The scale of infrastructure projects through public-private partnerships and private finance initiatives will be expanded to ¥12 trillion within 10 years.
● The government will raise the per-capita gross national income by ¥1.5 million within 10 years.