NUSA DUA, INDONESIA – Prime Minister Shinzo Abe tried Monday to persuade Asia-Pacific business leaders to have confidence in his economic strategy, pledging to concurrently pursue growth and fiscal discipline while its central bank buys up government debt to artificially stoke 2 percent inflation.
Speaking at a business event at the Asia-Pacific Economic Cooperation forum, Abe also called on APEC members to lead the world in developing advanced infrastructure in sectors such as energy and transport, saying Japan is ready to provide know-how to that end.
Referring to his recent decision to raise the sales tax next April for the first time in nearly 20 years, Abe said that was the best option.
“Economic revival and fiscal restoration can go together, and there is no other way (for Japan). That is my conclusion,” he said.
“It is essential to rehabilitate public finances and maintain confidence in the state as we go for revitalizing the economy,” he said in his speech to the APEC CEO summit.
Amid concern that the tax hike, aimed at covering swelling welfare costs and reducing the debt, could undermine Japan’s nascent economic recovery, Abe said the government will introduce a ¥5 trillion stimulus package to cushion the impact on business and household sentiment. The sales tax is to be raised to 8 percent from 5 percent now, and to 10 percent in 2015.
Japan is weighing tax incentives to rekindle businesses’ appetite for capital spending, he said, adding the government will also pursue deregulation and support firms in the utility, farming and medical industries.
Abe said such policies constitute the “third arrow” of his economic package dubbed “Abenomics,” which is based on radical quantitative easing by the Bank of Japan and “flexible” if not profligate fiscal spending to accelerate the country’s battle to halt chronic deflation.
“I can no longer lose time for necessary reforms,” Abe said.
At the same time, he noted challenges to further growth in Asia-Pacific economies, suggesting the 21-member APEC, which accounts for roughly half of global economic output, take the lead in developing advanced infrastructure for transport and energy systems.
“Japan has experienced achieving rapid economic growth by overcoming energy shortages and environmental destruction among other difficulties,” Abe said, offering to sell Japanese know-how in the APEC area.
On diplomacy and security, Abe restated Tokyo will continue to respect international rules and seek to become a “proactive contributor to stability in the world.”
Abe’s remarks were apparently aimed at giving reassurances about Tokyo’s posture at a time when Abe’s desire to revise the war-renouncing Constitution to enhance Japan’s defense capabilities has raised eyebrows in neighboring countries that were invaded by Japan.