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Japan to unveil growth strategy, economists demand more

Japan to unveil growth strategy, economists demand more


TOKYO (Reuters) – Japan’s government will outline a new growth strategy on Thursday that has disappointed many economists because it lacks the bold structural reforms needed to narrow income inequality and reverse a rapid population decline.

On June 1, 2016, Japanese Prime Minister Shinzo Abe attended a press conference at his official residence in Tokyo, Japan. REUTERS/Thomas Peter

Aggressive structural reforms will be crucial to lifting Japan out of decades of malaise, but economists say the flaws of Abe’s piecemeal approach are evident given the lack of progress after more than three years of “Abenomics.” Fiscal stimulus and structural reforms.

Abe’s delay in raising a sales tax due to weak consumption and the Bank of Japan’s failure to curb deflationary expectations despite resorting to negative interest rates suggest that policymakers have run out of tools to repair an economy that faces deeper problems of low growth and high debt. As the population ages.

“While the general direction of these policies is not wrong, many of the fine-grained policies lack specificity,” said Yuichi Kotama, chief economist at Meiji Yasuda Life Insurance Co.

“Japan’s biggest problem is an aging and shrinking population, and the supply-side weakness that comes with it.”

Abe has shifted his economic agenda this year to focus more on wealth redistribution and improving day care, partly in preparation for next month’s upper house election.

Many economists say the shift recognizes that despite Abe’s more than three years in power, many low-income households have failed to benefit from his efforts to boost a flagging economy.

Abe’s growth strategy will raise wages for childcare workers, raise the minimum wage and improve care for the elderly, but economists say the reforms are not enough to change Japan’s two-tier labor market.

The growth strategy approved by the cabinet on Thursday will introduce steps to narrow the pay gap between full-time and part-time workers, but critics say companies remain vulnerable to flouting labor laws and underpaying part-time workers. Attempts to lower wages for full-time workers in order to close the wage gap and thus curb overall wage growth.

The government also wants to raise the birth rate per woman from 1.4 to 1.8, a step in the right direction, but still below 2.1 – just the birth rate needed to prevent the population from shrinking.

Abe’s fiscal policy has also disappointed, as his decision on Wednesday to delay a sales tax hike raised doubts about how he will plug holes in public finances.

Abe has said he will announce a “comprehensive and bold” economic plan this fall, raising concerns that he will rely on huge fiscal spending on infrastructure that will do little to reverse the decline in the working-age population .

“I don’t think the reason for the slow growth has anything to do with fiscal policy being too tight or too loose,” said Richard Jerram, chief economist at the Bank of Singapore.

“The reason for the slow growth is simply demographic and structural rigidity.”

The growth strategy will reaffirm a commitment to achieve a balanced primary budget surplus by fiscal 2020 to rein in public debt that is already more than double annual economic output.

But the strategy is expected to lack details of how the government will make up for lost revenue and pay for rising entitlement spending.

The mention of revenue boosts is unlikely to be popular with voters as Abe and various parties are pushing for a July 10 poll of the upper house of parliament.

Instead, Abe said the election would be an opportunity for voters to rule on his decision to delay tax increases.

Delaying the tax hike is likely to be popular with most voters, although the poll showed nearly a quarter think it should go ahead as planned.

Additional reporting by Linda Sieg in Tokyo and Masayuki Kitano in Singapore; Editing by Eric Major



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