Japan’s Abe Shies Away from Structural Economic Reforms

The “third arrow” of the Japanese prime minster’s economic reform program underwhelms.

Prime Minister Shinzō Abe of Japan chairs a ministerial meeting in Tokyo, June 20, 2014
Prime Minister Shinzō Abe of Japan chairs a ministerial meeting in Tokyo, June 20, 2014 (Kantei)

Japan’s prime minister, Shinzō Abe, finally unveiled the “third arrow” of his economic reform program on Tuesday but the measures hardly signified a decidedly more liberal policy.

The conservative leader promised to lower Japan’s corporate tax rate, currently the highest in the developed world, to below 30 percent. But he notably shied away from proposing agriculture and labor market reforms that could lift the island nation’s economy out of its long slump.

Abe has promised to revitalize Japan’s economy, the world’s third largest, after two “lost decades” that followed a deep recession in the 1990s.

In power almost without interruption since the end of the Second World War, Abe’s Liberal Democratic Party consistently pursued fiscal stimulus in recent years to prop up consumer spending, causing Japan’s debt to exceed its economic output twofold last year.

When he took office in late 2012, Abe raised public spending further — the “first arrow” of his economic program — and convinced the central bank to raise its inflation target from 1 to 2 percent, allowing monetary stimulus — the “second arrow.” He held off on announcing a package of structural economic reforms until after last year’s election for the upper house of parliament.

The announced measures fell short of expectations — which had already been dampened by the long wait.

While urging business leaders to hire more women, Abe only suggested more childcare to help boost the female labor participation rate. And although he has recognized that Japan needs more skilled migrants, he emphasized on Tuesday his proposals do not amount to a new immigration policy.

Japan needs both more women and foreigners in work to compensate for its aging and shrinking population. Yet 70 percent of Japanese women still quit their job when they have children while immigration is unpopular.

Abe also shrunk from making its easier for firms to fire workers although strict dismissal policies make companies reluctant to hire.

On agriculture, the prime minister hopes to rezone farmland and shift toward larger scale farming. But he did not propose dismantling agricultural cooperatives or scrapping subsidies, opposed by most farmers, making is potentially harder for Japan to enter the proposed Trans Pacific Partnership free-trade area.

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