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Put Down Your Portfolio, Mrs. Watanabe, And Get Back To Work

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The latest Tankan survey conducted by the Bank of Japan reveals that business confidence in the country has scaled to its highest level in six years.

That’s good news on the first anniversary of Japanese Prime Minister Shinzo Abe’s assumption of power on December 16, 2012.

Japanese women have reason to be grateful to Mr. Abe’s government. After all it went out of its way to set up thousands of new child care centers – all towards the golden objective of getting Mrs. Watanabe and her cronies back to the grind. That’s the kind of labor shortage they have out there in Japan.

Watanabe: Abenomics scorecard

Banter aside, a scorecard of the much-vaunted Abenomics reveals that though there is progress, a lot more still remains to be done.

Prime Minister Abe deserves credit for reversing the unrelenting strength in the yen, making a dent in the country’s crippling deflation and restoring business confidence. Year to date, the Japanese stock market has risen 50%.

Watanabe: The heavy lifting is still to come

On the other hand, the government has been unable to come to grips with Japan’s chronic problems of an aging workforce, a huge public debt burden and still sluggish growth. A real growth target of 2% per annum remains elusive.

Critics say that the first two ‘arrows’ of monetary easing and fiscal stimulus by way of infrastructure spending were easy enough to fire, and duly achieved their aims, but the heavy lifting comes with the third arrow, which calls for structural reforms and deregulation to boost the country’s flagging competitiveness.

These are politically sensitive agendas such as inflexible labor laws, high corporate taxation and opening up Japan’s protected economy to foreign competition and immigrant labor.

Japanese women crucial for Abe’s third arrow

The Societe Generale Cross Asset Research team led by Patrick Legland and Michala Marcussen says in its study, “Abe’s 3rd Arrow – Reasons to be Optimistic,” that structural reforms and deregulation will happen, and that they are encouraged by Abe’s moves to raise the participation of Japanese women in the country’s labor market.

The participation of Japanese women, particularly those with educational achievements, in the workforce is very low compared to international norms (see chart below).

1-jap-women Watanabe

Watanabe: Japan underutilizing female workforce

“What this means is that Japan not merely underutilizes its female workforce, but that it especially underutilizes those with the highest education and human capital, and who could be among the most productive,” say the SocGen analysts in a new report titled Put Down Your Portfolio, Mrs. Watanabe, And Get Back To Work.

They say that the Prime Minister understands this and has taken steps such as boosting the number of child daycare places to enable women to go out to work, and asking companies to increase by 30% the number of women in leadership posts.

“While PM Abe has clearly taken on board the importance of women in his growth strategy, much still has to be done to reach his goals. That said, things do seem to be moving in the right direction,” says the SocGen team.

Structural reforms

SocGen cite Japan’s entry into various free trade negotiations such as the Trans-Pacific Partnership, and also with the EU, as signs of impending liberalization of domestic markets. They also view favorably Japan’s move to do away with its archaic regulation of the agricultural sector by removing quotas and subsidies. Japan may also succeed in dismantling anti-competitive mechanisms inherent in its energy sector.

These are developments that lead SocGen to be “less pessimistic” about Abe’s third arrow.

Mrs Watanabe: Conclusion for Japan

Shinzo Abe has breathing space for implementing the third phase due to the economic momentum from the depreciation of the yen, but of course, “structural reforms need time to gain traction, and early adoption is always advantageous,” say SocGen.

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