Business / Economy | ANALYSIS

Proof of 'Abenomics' pudding is in execution

by Jun Hongo

Staff Writer

The third pillar of “Abenomics” approved Friday by the Cabinet may have lacked the impact of its two predecessors, but some experts said Prime Minister Shinzo Abe’s attempt to revive the moribund economy will hinge on steady execution of all “three arrows.”

“The economic and fiscal policies adopted by the Cabinet weren’t anything like a different dimension,” as Abe prefers to describe his plans for ending deflation and restoring growth, Keisuke Naito, a senior economist at Mizuho Research Institute, told The Japan Times in an interview.

While lauding the government for laying out its intentions from the get-go, Naito said it remains to be seen how bold Abe can be in implementing his package of monetary, fiscal and growth policies.

“What is important now is that the government deliver on its promises. That will determine whether Abenomics will end merely as a minibubble or if it can put the economy back on the right path,” he said.

What was supposed to be the epitome of Abenomics, which includes bold monetary easing by the Bank of Japan and a fierce spending spree on public works by the government, wound up as a rather uninspired set of growth strategies and pledges to cut public spending that look like a carbon copy of vows by previous administrations.

“Now is the time for Japan to become the engine for a global economic revival,” Abe said last week while unveiling a sample of his growth plans in a speech.

But the market was left unimpressed and share prices on the Tokyo Stock Exchange dropped precipitously, mainly because the prime minister left out bold moves such as drastic corporate tax cuts.On the measures approved by the Cabinet on Friday, Abe threw in a tax cut proposal for companies — providing they make capital investments. But many judged it insufficient, especially coming from a prime minister who had trumpeted his policies as “from a different dimension.”

The usual slogans were present, including promises to raise annual real gross domestic product growth to 2 percent and boost the country’s per capita gross national income by more than ¥1.5 million within 10 years. But there was no mention of the way to achieve those goals.

The same goes for the blueprint on fiscal reform, in which the Cabinet followed previous administrations in vowing to halve the primary balance deficit by 2015 and achieve a surplus by 2020.

Although the government is set to announce its mid- to long-term fiscal plan later this year, attaining the ambitious targets is seen as dubious, at best.

Critics estimate that even by hiking the consumption tax to 10 percent in 2015, the government won’t be able to reach a primary balance surplus by 2020. This means spending will have to be drastically cut, although Abe has pledged to pump cash into public projects to stimulate the economy.

Even so, some voiced relief that fiscal reform was even mentioned at all.

“There were some concerns that a goal for the primary balance might be left out” of the measures approved by the Cabinet, Naito of the Mizuho institute said.

“At least they kept that part in,” he said.

Abe had been riding a hot streak since taking office in December, with the BOJ’s ultraloose monetary policy quickly weakening the yen and helping Japan’s exporters return to profitability.

The Cabinet Office revealed that GDP grew at an annualized rate of 4.1 percent in the last quarter, while Japan’s current account surplus doubled in April compared to the previous year.

The Nikkei 225 stock average was also riding high — at least until a few weeks ago, when a period of extreme volatility started to kick in.

On Tuesday, BOJ Gov. Haruhiko Kuroda hinted that he alone can’t sustain the upward trend of the economy and implied that Abe should quickly do his part.

“It is extremely important to come up with a fine strategy, but executing it is all-important. That is what I learned through my (previous) position as head of the Asia Development Bank,” Kuroda told reporters Tuesday when asked about his expectations for Abe’s growth strategies.

“What I expect of the government is, more than anything, to take action and carry out the policies in a timely manner,” he said.

Mizuho’s Naito concurred, saying: “Abenomics succeeded in working on the public’s expectations, but the effect is wearing off. That is partly causing the volatility of the market at present.”

As difficult as it is to boost growth while bringing government spending under control, Abe is “standing at the crossroads” and now is the time for him to show resolve, Naito noted.

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