PM Abe unveils “Three Arrow” Reform Plan

Monetary Easement, Tax Cuts and Labour Reforms are the Key

Prime Minister Shinzo Abe unveiled a package of measures on Tuesday aimed at boosting Japan’s long-term economic growth, from phased-in corporate tax cuts to a bigger role for women and foreign workers, but applause from investors is likely to be muted after Tokyo backpedalled on bolder reforms.

Japan’s economy has shown signs of revival since Abe took office 18 months ago pledging to end deflation and generate sustainable growth with a triple-pronged strategy he called his “Three Arrows”.

He stressed that a “positive cycle” was emerging as rising corporate earnings lead to higher wages, but that the recovery had yet to spread to the regions.

Experts say Tuesday’s update of the so-called “Third Arrow” of Abe’s strategy to revitalize Japan.

The first two “arrows” are massive monetary easing, which has helped push up asset prices, and fiscal spending to stimulate demand.

The growth strategy could boost Japan’s potential growth rate by 0.2-1.5 percentage points from its current level of around 0.5 percent.

Japan plans to hit the 2 percent growth level the government says is needed to reduce its mammoth public debt.

Tax Cuts

The centrepieces of Abe’s plan are a future cut in Japan’s effective corporate tax rate-among the highest in the world-to below 30 percent over the next several years, and a promise to reform the $1.26 trillion Government Pension Investment Fund in ways likely to reallocate more money to the stock market.

The key implementation and Abe’s commitment to meet words with action, so that companies feel confident enough to boost investment for the future.

BOJ Governor Haruhiko Kuroda, a former senior finance ministry bureaucrat, has also warned against cutting Japan’s corporate tax rate without securing an alternative source of tax revenue, given the country’s massive public debt.

In a nod to that need for balance, the tax plan will seek to offset the cuts by broadening the tax base.

Earlier in the day, Abe urged the nation’s business leaders to do more to boost the role of working women, a key plank in the growth strategy and seen as vital to address the shrinking workforce in one of the world’s most rapidly ageing societies.

Foreign Workers

The package also included steps to raise the number of highly skilled foreign workers and expand a controversial foreign trainee programme; boost productivity through a “robotic revolution”; and target the healthcare sector for growth.

But early bold proposals on agriculture reform look to have been watered down due to opposition from the powerful farm lobby.

And while experts say the goal of stabilizing the declining population at around 100 million will be difficult to achieve, the government has gone out of its way to say moves to increase foreign workers are not an “immigration” policy.

No Overtime

Paid overtime for workers earning the equivalent of at least $100,000 per year - only about 4 percent of the workforce will come to an end. The touchy question of whether to make it easier to fire workers was left for later debate.