The final front of Mr Abe’s assault on Japan’s economic malaise is the ‘growth strategy’, which was unveiled on June 14. There has been a sense that Mr Abe has been rather unforthcoming about the scale of structural adjustment required in the economy, and the impact that this will have on Japan’s population. However, with the Upper House election out of the way, can we expect a more honest appraisal, and more meaningful change?
One factor that has been placed front of Mr Abe’s growth strategy is the Trans-Pacific Partnership trade agreement, with Japan joining trade talks with its regional partners in July. The Japanese government estimates that scrapping all customs duties with TPP members could provide a net economic boost of ¥3.2trn (about 0.7 per cent of GDP).
The impact on the economy could even be higher if the benefits of deregulation and a harmonisation of trade rules are considered. Yet, there is an obvious dilemma here for a prime minister who has been swept to power thanks to a powerful rural support base. It already appears that the Japanese government is seeking waivers for a number of key agricultural products, including rice, hardly the most encouraging omen. Consequently, these trade negotiations are likely to prove difficult and could easily overrun the December target to reach agreement.
There is also a sense of concern over other aspects of Mr Abe’s growth strategy with labour market reform and reform of the electricity market already attracting criticism from vested interests. In addition, attempts to restart nuclear power plants are likely to be fraught with difficulties, with widespread opposition to Mr Abe’s proposal for nuclear power.
Of course, the prime minister does not need to make every policy proposal a showstopper. However, after such a surge in Japanese shares – more than 40 per cent year to date – investors will be increasingly keen to see evidence in coming months that there is indeed substance to match his undoubted style.
Andrew Milligan is head of global strategy at Standard Life Investments
