• Bloomberg


Despite progress made under “Abenomics,” Japan’s medium-term economic outlook is for growth that is actually weaker than during the nation’s period of deflation, according to the International Monetary Fund.

The assessment reflects disappointing levels of business investment and slower than expected progress in reforming the labor market, said Giovanni Ganelli, a Tokyo-based economist at the IMF who helped compile the fund’s annual review of Japan.

Policies in place now point to expansion stuck at around 0.65 percent from 2018 to 2020, versus an average of 0.9 percent from 2000 to 2012, when Japan was locked in a deflationary funk.

The economy’s growth potential rate would be more like 1.5 percent if Prime Minister Shinzo Abe’s government delivered on a full package of structural reforms, Ganelli said in an interview Wednesday.

He highlighted progress in female participation in the labor force, while emphasizing that adjustments to the tax system could encourage more women into employment and foreign workers may be the solution to ease shortages in some industries.

A middle ground is also needed between the rigid system for permanent workers and the insecure job contracts used for temporary workers. Inequality in both compensation and employment security is a problem for Japan, he said.

He and his colleagues at the IMF are watching changes to Japan’s corporate governance regime with great interest. Ganelli said increasing the sway of shareholders with the companies they invest in is vital to ensure that corporate Japan puts its cash hoard to productive use.

The IMF’s medium-term estimate last year for economic growth in Japan was close to 1 percent, before being cut to about 0.65 in April.

Abe came to power in 2012 with a three-part plan to boost government spending, unleash monetary stimulus and bring structural reform to the economy. The first two of these so-called three arrows have been fired. Economists are debating the progress of structural reform.

“A lot has been achieved in terms of Abenomics,” said Ganelli. “There is . . . room to do more. Basically, all the three arrows should be fired.”

The government should promote gentei seishain labor contracts that offer a similar level of job security to traditional permanent positions without the same kinds of rotations through multiple departments and locations, he said.

A lack of legal clarity so far on gentei seishain contracts means that companies are hesitating to make more use of them, he said.

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