Abenomics 2.0: Japan Aiming for New Growth Policies

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If nothing else, you can’t fault Prime Minister Shinzo Abe for effort. Japan has long been known for its stagnant bureaucracy and stifling keiretsu corporate culture. Prime Minister Abe has unveiled a second round of reforms designed to spur growth, following up on the moderate success of his first efforts at reform. The newly proposed reforms will focus on revitalizing Japan’s corporate environment.

Abenomics: Effort part of a “three arrow” approach

Shinzo Abe has unveiled the third prong, or arrow as it is referred to in Japan, of his economic reform policies. The first “arrow” of his policy was a massive currency easing effort that brought the yen down from its once absurd heights. By devaluing the yen, the Japanese made it cheaper to purchase their exports in the global market. This should lead to increased purchasing abroad and hopefully drive economic growth.

The second arrow focused on a massive surge of government spending. This followed along the lines of typical Keynesian economics with the belief that government spending could spur economic growth. While such policies are contested globally, they do appear to have generated some positive returns in Japan.

Analysts and economists have long-awaited the third arrow, and most correctly deduced that it would focus on reforming Japan’s long listless economic sector. Once one of the world’s most productive economies, a complex system of keiretsu conglomerate structures that stifled outside ideas and competition, in combination with a corporate culture that favored seniority over innovation, has left many of Japan’s companies all but dead in the water.

Abenomics: Mixed results for first two arrows

It’s hard to determine whether or not Shinzo Abe’s economic policies have been bearing any fruit. Japan suffered mightily during the 2008 financial crisis with the economy contracting by about 4%. Since the crisis subsided and the installation of the so-called “Abenomics”, Japan’s economic growth has jilted into positive and negative territory.

So far, data would suggest that Abe’s plans have breathed some life into the economy, but not enough to really kick start growth. Mr. Abe appears to be confident, however, that the third arrow will increase momentum and will allow Japan to finally begin to break free from the decades of stagnation that have plagued the nation.

Abenomics: Third arrow will focus on private sector reform

The third arrow of Abenomics reform policy will center on cutting corporate taxes and deregulation. Japan has a notoriously complex system of regulations that make it difficult to fire people and many have argued restrain innovation and investment in various sectors. Japan will also look to increase the participation of women in the work force and will bring in foreign workers.

Tax revisions and the opening of child day care centers will all be pushed forward to support the participation of women in the work force. Given that Japan’s population is aging and shrinking, women will likely prove essential for securing growth. Details on Japan’s plans for foreign workers are not forthcoming, but similar efforts in the past have drawn scorn from many Japanese citizens.

The government will also look to create special economic zones, and apparently is aiming to launch some as early as this fall. How these special economic zones will operate and what industries they will target thus far remains unclear.

Another major reform will be to require corporations to adhere to certain corporate governance codes, and to act in the interest of their shareholders. Many economists have argued that Japan’s closed off business culture has created companies that are not truly beholden to investors. This meant that often companies were more concerned with protecting their turf and way of doing things rather than pursuing profits.

So far most investors and economists appear to be optimistic that Abe’s strategies are, at the very least, a step in the right direction.

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