Japanese Prime Minister Shinzo Abe pledged a legislative campaign to loosen rules on businesses ranging from non-prescription drugs to construction.
Stocks slid on Wednesday as he said the effort wouldn’t begin for months.
In a Tokyo speech previewing his government’s economic growth strategy, the “third arrow” of Abenomics, Abe, 58, said his revival plan would recoup ¥50 trillion (R5 trillion) in national income that was lost during two decades of economic malaise.
He said policymakers would remove barriers to private enterprise and legislation would be enacted as soon as autumn.
Stocks initially rose – with online retailer Rakuten rising as much as 6.4 percent after Abe said he would allow internet sales of non-prescription drugs – before turning lower.
The timing means he’s putting off taking on vested interests until after next month’s election for the upper house of parliament, and leaves the onus on the central bank to boost growth for now.
“It’s hard for the government to raise hopes with the growth strategy – the third arrow – because it will be some time before it takes effect,” said Junko Nishioka, the chief economist at Royal Bank of Scotland Group in Tokyo and a former Bank of Japan official. “The government is going to have to rely on the Bank of Japan (BOJ) to boost market expectations.”
The growth strategy to be unveiled next week is part of an economic revival plan following fiscal and monetary stimulus. While the first two stages were initially greeted with enthusiasm by investors, stocks have entered a correction from the biggest rally in a quarter century and the yen has risen against the dollar after touching a four-and-a-half year low.
BOJ governor Haruhiko Kuroda in April unveiled a plan to double the amount of money in the economy over two years.
The benchmark Topix index has dropped more than 14 percent since reaching a five-year high on May 22.
Abe vowed to deregulate the energy, health and infrastructure sectors and double foreign investment in Japan to ¥35 trillion by 2020.
He added that he would raise investment in the power industry to ¥30 trillion in 10 years and triple to ¥12 trillion the use of public-private partnerships to fund infrastructure projects such as airports, waterworks and highways over the same period.
He did not address whether to change labour laws in order to make it easier to fire workers.
“This will encourage all kinds of constructive private sector activity and spark international innovation within Japan,” Abe said.
“Deregulation is the cornerstone of the growth strategy. Japan has regulations that are out of sync with the times.”
Even so, Tokyo Electric Power, the operator of the idled Fukushima Dai-Ichi nuclear plant, tumbled 16 percent on Wednesday after the speech, which excluded any reference to when Japan might restart atomic reactors idled after the March 2011 disaster. Nuclear power accounted for more than a quarter of the country’s energy before the Fukushima meltdowns.
Details on the most-needed reforms will be announced by the end of August, according to a draft of the government’s growth strategy released by the Industrial Competitiveness Council hours after Abe’s speech. The panel, which includes cabinet members and business leaders, recommended the restarting of nuclear plants that get approved as safe by the Japan Nuclear Regulation Authority.
Wednesday’s draft included detailed objectives, while stopping short of spelling out how the goals will be achieved. Officials want to double exports from small and medium-sized companies by 2020, and more than double shipments of agricultural products. Farming will be overhauled to reduce the role of small-plot growers, with 50 000 agricultural corporations by 2020.
The growth plan will be put together on June 12 and be approved by the cabinet on June 14, deputy chief cabinet secretary Hiroshige Seko said on Tuesday.
The strategy would take time to implement and show results, Seko said, adding that the recent market volatility did not reflect a loss of confidence in Abe’s policies.
“I don’t think we have lost the trust of the markets,” Seko said.
“The market is determined by corporate results and those corporate results are healthy.”
The draft plan set a goal of 2 percent annual average increases in gross domestic product (GDP) over the next decade, adjusting for changes in prices.
Real GDP averaged 0.8 percent growth for the past two decades, according to the International Monetary Fund. Nominal GDP was targeted for 3 percent gains.
Seko said Abe was still considering lowering corporate tax rates, a topic that wasn’t addressed in Wednesday’s speech.
The government is examining Economy Minister Akira Amari’s suggestion of lower taxes in special economic zones, which may be created in a bid to encourage innovation. Japan’s corporate tax rate is about 37 percent, the second-highest among countries in the Organisation for Economic Co-operation and Development (OECD).
“It’s true corporate taxes are high, so lowering them to encourage domestic investment is one of the foundations of our government’s economic policy,” Seko said.
“The timing and extent is still under negotiation.”
Hiroshi Mikitani, the president of Rakuten and a member of the panel that published the draft growth strategy, complained in a statement that the document excluded reference to the tax system. His company’s shares closed up 1 percent after most of its gains earlier on Wednesday were erased.
Another panel member, Heizo Takenaka – who earlier this decade led efforts to resolve Japanese banks’ bad-loan crisis – said proposed changes for highly regulated areas such as agriculture, health care and the labour market weren’t sufficient. In a statement, he also said that questions remained on how implementation of the recommendations would be checked.
Meantime, the government will set up a panel of experts to examine asset management by the public pension system and quasi-public organisations. The group would report by autumn and would look at such issues as improving returns from long-term investment in stocks, risk control and diversified investment, Wednesday’s draft said.
Japan’s childcare market needs urgent changes to solve the lack of urban pre-schools, and environmental assessments for coal-fired power stations need to be simplified, the government’s deregulation committee – a separate panel that incorporates cabinet members and academics and business executives – said on Wednesday in its first report.
The committee would consider further areas for reform in the coming year, it said.
Japan will end childcare waiting lists by the conclusion of the 2017 fiscal year, according to the draft growth strategy released on Wednesday.
Abe took office in December after his Liberal Democratic Party’s (LDP) landslide in the lower house of parliament. The LDP is forecast to win the July contest for the less powerful upper house, giving the ruling coalition a majority in both houses. The prime minister’s support rate was at 68 percent, according to a Nikkei newspaper poll published on May 27.
Almost half of the respondents planned to vote for the LDP, compared with 6 percent for the next most popular party, the Democratic Party of Japan.
The Nikkei surveyed 921 people from May 24 to 26 and gave no margin of error. – Isabel Reynolds and Takashi Hirokawa from Bloomberg