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| Fervor Fades After Japan’s Latest Plan | |
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| TOKYO — In a bid to give a second wind to his drive to kick-start Japan’s economy, Prime Minister Shinzo Abe laid out a wide-ranging growth strategy on Wednesday that he said would beat deflation, increase personal incomes and reboot an economy written off in recent years for its seemingly unshakable malaise. | TOKYO — In a bid to give a second wind to his drive to kick-start Japan’s economy, Prime Minister Shinzo Abe laid out a wide-ranging growth strategy on Wednesday that he said would beat deflation, increase personal incomes and reboot an economy written off in recent years for its seemingly unshakable malaise. |
| But his latest plan seemed to disappoint investors, and stocks slumped as he spoke. The Nikkei 225-share index ended the day down 3.8 percent, another rout in what is turning into an extended correction for the index. | |
| Initial enthusiasm over his program, dubbed Abenomics, of aggressive monetary easing, public works spending and economic overhauls had driven the stock market up by 80 percent from late last year, when Mr. Abe began his campaign for office, through the middle of May. But optimism has waned in the past two weeks, as investors took stock of the risks and shortfalls that accompanied the bet to end longstanding deflation. Investors have also demanded more specifics on how exactly Mr. Abe intended to encourage economic growth. | Initial enthusiasm over his program, dubbed Abenomics, of aggressive monetary easing, public works spending and economic overhauls had driven the stock market up by 80 percent from late last year, when Mr. Abe began his campaign for office, through the middle of May. But optimism has waned in the past two weeks, as investors took stock of the risks and shortfalls that accompanied the bet to end longstanding deflation. Investors have also demanded more specifics on how exactly Mr. Abe intended to encourage economic growth. |
| Mr. Abe sought to offer answers Wednesday. He said he would provide tax breaks to encourage foreign direct investment. He said he would remove cumbersome regulations, for example in the medical sector by removing a ban on sales of nonprescription drugs on the Internet. And he pledged to combine Japan’s high-grade infrastructure and manufacturing prowess with the daring and creativity of a younger generation eager to seize the reins from the economic old guard. | Mr. Abe sought to offer answers Wednesday. He said he would provide tax breaks to encourage foreign direct investment. He said he would remove cumbersome regulations, for example in the medical sector by removing a ban on sales of nonprescription drugs on the Internet. And he pledged to combine Japan’s high-grade infrastructure and manufacturing prowess with the daring and creativity of a younger generation eager to seize the reins from the economic old guard. |
| “For 20 long years of deflation, Japan suffered a deep loss of confidence,” Mr. Abe said. “It is now time for Japan to become an engine of global economic growth.” | “For 20 long years of deflation, Japan suffered a deep loss of confidence,” Mr. Abe said. “It is now time for Japan to become an engine of global economic growth.” |
| But some of the fundamental overhauls needed for an economic renewal, like labor market changes, were conspicuously missing from Mr. Abe’s policy plans, as were vital details, said Akio Makabe, a professor in economics at Shinshu University in central Japan. | |
| “At the start, there was hope that Mr. Abe was as committed to economic reforms as he has been with monetary policy and government spending,” Professor Makabe said. “But judging from this policy platform, that commitment appears to be wavering. Where is the labor market reform? Where is the real change? It seems he’s given in to the naysayers and listed up policies that just sound good.” | |
| If Mr. Abe fails to deliver on his promises for bold change, the euphoria that drove Tokyo shares to a five-year high could evaporate further, economists warn. And without those fundamental overhauls, they say, Japan is at risk of sinking back into the economic torpor that has defined much of the past two decades. | If Mr. Abe fails to deliver on his promises for bold change, the euphoria that drove Tokyo shares to a five-year high could evaporate further, economists warn. And without those fundamental overhauls, they say, Japan is at risk of sinking back into the economic torpor that has defined much of the past two decades. |
| Mr. Abe also hopes to maintain momentum to upcoming parliamentary elections this summer, his first major test at the ballot box for his economic policies. But with ratings high and political opponents weak and divided, his Liberal Democratic Party is likely to make a strong showing. | Mr. Abe also hopes to maintain momentum to upcoming parliamentary elections this summer, his first major test at the ballot box for his economic policies. But with ratings high and political opponents weak and divided, his Liberal Democratic Party is likely to make a strong showing. |
| Many economists and younger business leaders say that the crux of the overhauls lies in raising Japan’s economic metabolism by making it easier for new companies to enter the market and for fading old ones — of which there are many in Japan — to exit. That would need to be paired with a more flexible labor market to smooth the transfer of workers from ailing companies to promising new ones. | Many economists and younger business leaders say that the crux of the overhauls lies in raising Japan’s economic metabolism by making it easier for new companies to enter the market and for fading old ones — of which there are many in Japan — to exit. That would need to be paired with a more flexible labor market to smooth the transfer of workers from ailing companies to promising new ones. |
| Hope may lie in companies like Pijin, an Osaka-based start-up with roots in a student venture that developed multilingual, “smart” Internet search technology. In March, Pijin released its first product: an online service that links Quick Response codes — checkered symbols that can be scanned with a smartphone — to cloud technology that provides translation into different languages. | Hope may lie in companies like Pijin, an Osaka-based start-up with roots in a student venture that developed multilingual, “smart” Internet search technology. In March, Pijin released its first product: an online service that links Quick Response codes — checkered symbols that can be scanned with a smartphone — to cloud technology that provides translation into different languages. |
| “Everything about the Japanese economy tends to be skewed in favor of large, established companies and toward Tokyo, and that needs to change,” said Kenji Takaoka, chief executive of Pijin. | “Everything about the Japanese economy tends to be skewed in favor of large, established companies and toward Tokyo, and that needs to change,” said Kenji Takaoka, chief executive of Pijin. |
| A 2010 study by the economists Kyoji Fukao and Hyeog Ug Kwon showed that Japanese companies set up after 1996 added the most jobs in the period to 2010, creating 1.2 million, compared with a net loss of 3.1 million jobs over the same period at all companies founded before 1996. Foreign companies added more than 150,000 net jobs to Japan, highlighting what is seen as the need for Japan to open up to more foreign direct investment, whose inflows came to less than 4 percent of economic output in 2001, compared to one-fifth of the American economy and half of Britain’s. | A 2010 study by the economists Kyoji Fukao and Hyeog Ug Kwon showed that Japanese companies set up after 1996 added the most jobs in the period to 2010, creating 1.2 million, compared with a net loss of 3.1 million jobs over the same period at all companies founded before 1996. Foreign companies added more than 150,000 net jobs to Japan, highlighting what is seen as the need for Japan to open up to more foreign direct investment, whose inflows came to less than 4 percent of economic output in 2001, compared to one-fifth of the American economy and half of Britain’s. |
| That, economists say, would bring real change to a country famous for its world-class exporters like Toyota and Canon but also chock-full of laggards that are sheltered by regulations and kept alive by subsidies, sucking the lifeblood out of the Japanese economy. For Japan to make the productivity gains it needs to grow, economists say, these domestic companies must be opened up to more competition from both inside Japan and overseas. One catalyst for such change would be Japan’s participation in the Trans-Pacific Partnership free trade agreement, already announced by Mr. Abe. | That, economists say, would bring real change to a country famous for its world-class exporters like Toyota and Canon but also chock-full of laggards that are sheltered by regulations and kept alive by subsidies, sucking the lifeblood out of the Japanese economy. For Japan to make the productivity gains it needs to grow, economists say, these domestic companies must be opened up to more competition from both inside Japan and overseas. One catalyst for such change would be Japan’s participation in the Trans-Pacific Partnership free trade agreement, already announced by Mr. Abe. |
| Mr. Abe spoke Wednesday of letting private-sector entrepreneurism take the lead in innovation. He said he would set up special economic zones that would experiment with regulation and revive private-sector investment to the levels of before the global financial crisis. | Mr. Abe spoke Wednesday of letting private-sector entrepreneurism take the lead in innovation. He said he would set up special economic zones that would experiment with regulation and revive private-sector investment to the levels of before the global financial crisis. |
| Mr. Abe also said he intends to liberalize Japan’s energy market by breaking up regional monopolies and overhaul Japan’s medical insurance system. His government is also pushing for an early resumption of Japan’s mostly idled nuclear reactors. And to tackle the problems of a graying population, he pledged to make it easier for families to balance work and family, though his focus on mothers’ roles in child-rearing and suggestions like extending maternity leave led to some criticism that the proposals would be counterproductive to advancing women’s participation in the work force. | Mr. Abe also said he intends to liberalize Japan’s energy market by breaking up regional monopolies and overhaul Japan’s medical insurance system. His government is also pushing for an early resumption of Japan’s mostly idled nuclear reactors. And to tackle the problems of a graying population, he pledged to make it easier for families to balance work and family, though his focus on mothers’ roles in child-rearing and suggestions like extending maternity leave led to some criticism that the proposals would be counterproductive to advancing women’s participation in the work force. |
| Mr. Abe said growth policies would add at least 1.5 million yen to Japanese per capita income within a decade, a goal reminiscent of a legendary income-doubling plan pursued in the 1960s. | Mr. Abe said growth policies would add at least 1.5 million yen to Japanese per capita income within a decade, a goal reminiscent of a legendary income-doubling plan pursued in the 1960s. |
| The stakes are high, economists say. If the overhauls fail to ignite growth, the aggressive government pump-priming and spending could come back to haunt Japan, dealing a heavy blow to its already stretched finances. | The stakes are high, economists say. If the overhauls fail to ignite growth, the aggressive government pump-priming and spending could come back to haunt Japan, dealing a heavy blow to its already stretched finances. |
| Mr. Abe raised the stakes on Wednesday by saying he would urge Japan’s public pension funds, which control more than $2 trillion in investments, to shift those holdings away from a heavy focus on domestic bonds and toward higher-return equities and overseas assets. Such a shift would put Japan’s huge savings pool to more efficient use, helping to prompt corporate investment and consumer spending, but also raise the risk of driving the government’s borrowing costs higher as it competes with the private sector for funding. Since last month, long-term interest rates have already climbed higher. | Mr. Abe raised the stakes on Wednesday by saying he would urge Japan’s public pension funds, which control more than $2 trillion in investments, to shift those holdings away from a heavy focus on domestic bonds and toward higher-return equities and overseas assets. Such a shift would put Japan’s huge savings pool to more efficient use, helping to prompt corporate investment and consumer spending, but also raise the risk of driving the government’s borrowing costs higher as it competes with the private sector for funding. Since last month, long-term interest rates have already climbed higher. |
| “Even if fiscal and monetary policies work to stimulate the market, their effects are passing, and Japan will just be buying time,” said Ryutaro Kono, Japan economist for BNP Paribas, in a note to clients. “But the kind of reforms that would truly raise economic growth rates have fallen by the wayside.” | “Even if fiscal and monetary policies work to stimulate the market, their effects are passing, and Japan will just be buying time,” said Ryutaro Kono, Japan economist for BNP Paribas, in a note to clients. “But the kind of reforms that would truly raise economic growth rates have fallen by the wayside.” |