Stocks could surpass a level not seen since 2007 if the Abe administration pushes through in its drive to loosen business regulations, said Heizo Takenaka, a member of a government council on special economic zones.
“Stocks have surged considerably, but they can still improve if policies are implemented properly,” Takenaka, 62, said in an interview Wednesday.
The Nikkei 225 stock average “could easily exceed 18,000 in light of Japan’s economic strength,” he said.
The benchmark index surged 57 percent last year, its biggest annual advance since 1972, after Prime Minister Shinzo Abe spurred the unleashing of monetary and fiscal stimulus. The Diet last month passed a bill to establish zones in which the government can experiment with deregulation — a pillar of Abe’s growth strategy aimed at invigorating business.
“The government needs to pursue the loosening of bedrock regulations, such as accepting more foreign workers,” said Takenaka.
Labor market deregulation is a high priority in the zones, and a range of working practices should be recognized to encourage an increased participation of women and elderly people in the workforce, he said.
The Nikkei last topped the 18,000 mark in July 2007.
Takenaka is one of five private-sector members of the council, which is chaired by Abe and held its first meeting this week.
The administration may decide in March where it will locate the zones, Abe said Jan 7.
“Reforms are progressing as far as the special economic zones are concerned,” Takenaka said.
Reductions in the corporate tax will be included in the broader deregulation agenda for the zones, he said.
The yen has fallen 17 percent against the dollar in the past 12 months, touching its lowest level since October 2008 on Jan 2.
The yen has not yet completed its correction from an excessive appreciation over the past few years, Takenaka said, adding that it could weaken further based on Japan’s economic fundamentals.
The Bank of Japan’s announcement of unprecedented easing last April in pursuit of a 2 percent inflation target has helped underpin stock prices and sustain the yen’s decline.
Even so, the nation may suffer a one-quarter contraction in the three months through June after the consumption tax is raised to 8 percent in April.
BOJ Gov. Haruhiko Kuroda said in December that the economy will continue a moderate recovery even with the tax rise. The bank will monitor risks and adjust monetary policy as needed, he said.
Takenaka said the BOJ should keep a “free hand” to ease further depending on economic conditions after the tax increase.
Inflation accelerated to the fastest pace since 2008 in November, bringing the rate closer to the BOJ’s target. The price gains threaten to erode household spending power unless employers raise wages.
Takenaka said Wednesday it is important for wages to rise to spur a “virtuous economic cycle,” using the same language as Abe, who is pressing business leaders to boost salaries.
Takenaka, a professor at Keio University, was economic and fiscal policy minister from April 2001 to October 2005 under Prime Minister Junichiro Koizumi. He crafted a program to halve the ratio of banks’ nonperforming loans in response to a banking crisis during this period.
Shirai urges vigilance
A Bank of Japan policymaker said Thursday the central bank should further ease monetary policy “without hesitation” if the economy and prices are moving considerably below its projections.
“I believe additional monetary easing measures should be taken without hesitation so as not to jeopardize the BOJ’s credibility, whenever downside risks to the BOJ’s baseline scenario are judged to have materialized,” Sayuri Shirai said, according to the text of her speech in Singapore released by the BOJ.
The central bank embarked on a radical monetary easing policy last April aimed at stoking 2 percent inflation in two years by doubling Japan’s monetary base through massive purchases of government bonds.
Consumer prices, excluding fresh food, rose 1.2 percent in November from a year before for the sixth straight month of increase, while wages continue to fall.
Despite the continued increase in consumer prices, Shirai said there may be “high uncertainty” about meeting the restated timeline of “about two years” due to consumer concerns about the rapid decline in their real disposable income and companies’ reluctance to raise the prices of their goods, much less wages.
“I personally consider that it may take some time” before the impact of monetary easing fully materializes, she said.