The Cabinet of Prime Minister Shinzo Abe adopted two sets of economic and fiscal policy papers Friday filled with dozens of bold economic goals and plans that have already drawn fire for lacking specifics on how to achieve them.
The targets include doubling annual real gross domestic product growth to 2 percent and maintaining it for the next 10 years while halving the primary balance deficit — a key gauge of Japan’s fiscal health — by 2015 and posting a surplus by 2020.
Neither set of papers elaborates on how Abe’s team will achieve the targets, and thus appear like a continuation of the rosy economic rhetoric coming ahead of the vital July Upper House poll that the ruling bloc hopes to emerge from with a majority, which it lacks at present. The nation’s GDP has been growing at an anemic pace of around 1 percent for the past decade.
Abe’s debt-ridden government has meanwhile pledged to trim government spending, including on the politically sensitive social security system, and claims it will leave no sanctuaries. Not surprisingly, the plans don’t specify which parts of the budget will be pruned or by how much.
One of the two sets of papers lists dozens of “growth strategy” goals and plans that Abe claims will create private demand via deregulation and government-backed projects. But the 94-page wish list looks more like a jumble of individual ministry projects that each hopes to get labeled as part of the “Abenomics” agenda.
On Thursday, a day after the draft of the economic paper were released, the Nikkei 225 stock average dived more than 6 percent, partially reflecting doubt and disappointment with Abe’s plans.
Among the projects are proposals to set up special economic zones, ease regulations on international schools, remove the current ban on online drug sales and drastically increase day care centers to help bring more women into the workforce.
The Cabinet, meanwhile, is stressing that almost all of the nation’s main economic indicators have been rising recently, although their momentum appears rather moderate. Japan’s real GDP for the January-March quarter rose at an annualized rate of 4.1 percent compared with the last quarter.
“The real economy is steadily improving,” Abe insisted to reporters Friday morning after the Cabinet officially adopted the two sets of documents. “I believe this the only path for us. We’d like to strongly keep pushing the promotion of policies” based on the two sets of papers, he said.
In the past two weeks, investors have apparently begun questioning the feasibility of Abe’s economic strategy, in particular those aimed at spurring private-sector growth.
To win the critical Upper House election and gain total control of the Diet, the revisionist leader appears to be bombarding the media with rosy economic rhetoric to keep the stock market afloat until the election, expected July 21.
His main tool has been the Bank of Japan, which kicked off a drastic monetary easing experiment that is turning out to be a one-sided effort to pull Japan out of prolonged deflation. The drastic easing campaign, played up in advance, has clobbered the yen and pulled investors into the stock market with sure bets on exporters.
Nevertheless, Abe remains under pressure to hammer out steps that can spur sustainable growth because an economic recovery cannot be attained through monetary measures alone.
Investors are also concerned about the BOJ’s aggressive credit-easing measures and the ruling Liberal Democratic Party’s return to heavy fiscal spending despite the government’s heavy debt load. Without real structural reforms, these steps are only delaying the day of reckoning for Japan’s dying economy, they say.
Abe’s Cabinet was quick to respond to foreign investors and analysts after the Nikkei started to tumble late last month. On June 6, Chief Cabinet Secretary Yoshihide Suga said the government would consider lowering corporate taxes in an apparent bid to encourage foreign investors to buy more Japanese stocks.
A senior government official close to Abe, who has been closely monitoring the stock market, said foreign investors are the key to boosting prices as they have remained net buyers on the Tokyo Stock Exchange in recent months.
Some of Abe’s economic steps were thus targeted at attracting foreign businesses, the official said, speaking on condition of anonymity.
“Foreign investors are paying particular attention mainly on three areas,” the official said earlier this month. “One is whether the government is really serious in removing die-hard regulations. Another is corporate tax breaks, and the last one is how Japan can make up for its decreasing workforce in an aging society.”
Those growth strategy measures, however, so far have failed to persuade foreign investors to prop up the TSE.
Nevertheless, the official pointed out that the recent plunges of the Nikkei have yet to affect still-high public support rates for Abe’s Cabinet — at least for now.
Gist of growth, fiscal blueprints
The economic growth strategy
· Targets nominal economic growth of 3 percent, 2 percent in real terms, by boosting per capita gross national income by at least ¥1.5 million within 10 years.
· Aims for a 10 percent increase in total business investment to ¥70 trillion annually over three years.
· Permits online sales of over-the-counter drugs.
· Seeks to set up special economic zones to promote deregulation.
· Calls for idled nuclear power plants to be restarted after their safety is confirmed.
The fiscal policy strategy
· Aims to halve the ratio of Japan’s primary balance deficit to gross domestic product by 2015, from the fiscal 2010 level.
· Plans to return the primary balance to a surplus by fiscal 2020.
· Calls for a review of ballooning social security costs with nothing to be deemed off-limits.