Japanese minister Yasutoshi Nishimura delivered an upbeat assessment of the nation’s growth plan at a forum in Hong Kong yesterday, although his speech was underpinned more by “hope” than detail.
Speaking at the Credit Suisse Asian Investment Conference, his address followed a two-minute pre-recorded video message from prime minister Shinzo Abe, the extent of which was: “Now is a once-in-a-decades opportunity to invest in Japan.”
Nishimura was seeking to convince the international audience of the sustainability of Abenomics. He sought to counter concerns about potential stagflation, fears raised at AsianInvestor’s Japan Institutional Investment Forum this month, stressing that the rise in domestic consumption tax from 5-8% this April could be offset by a 2% rise in wages combined with bonus payments.
On a question from the floor about further consumption tax rises, Nishimura noted the government had penciled in a rise to 10% by October 2015, although said that had still to be finalised and would depend on prevailing economic conditions.
“We have prepared an economic package, including ¥1 trillion in tax incentives in a ¥5.5 trillion supplementary budget, to mitigate against the rise to 8%,” he said. “We have to watch the economic situation very carefully and will make decisions by the end of this year on whether to raise to 10%.”
Nishimura said the government understood the negative impact of this tax hike, but that it also acknowledged the importance of fiscal consolidation to keep interest rates low. “It was a tough decision, but we decided to hike,” he said.
“This is a change from a deflationary to inflationary environment, but still inflation won’t be high. It will be a good time for consumers to spend and invest more.”
Nishimura said the government’s priority was to increase revenues through its growth strategy primarily, while reducing expenditure on such things as social security.
It would restart nuclear power plants pending safety approvals to cut its current account deficit, and from 2017 would begin to import shale gas from the US. With recovery underway in Europe and the US, he said the current account balance sheet would improve.
He accepted that Japan needed to make itself more competitive internationally, saying the government was eager to draw a multi-year roadmap on reduction in corporate tax by this June, combined with the easing of immigration rules to welcome more skilled professional from abroad.
He noted that Japan was set to cut corporate tax by more than 2 percentage points to 35%, although conceded that was still well above the OECD average of 25.5%.
Asked by AsianInvestor how the government planned to stimulate corporate capital expenditure, which remains sluggish, Nishimura noted the government had introduced the Industrial Competitiveness Enhancement Act last year to provide tax incentives for investment.
“We have to accelerate the recovery of our industry. We are pushing industries to invest more in Japan, and consumers to spend more,” he said.
Part of the plan is to encourage public-private partnerships (PPP) and private finance initiatives (PFI), notably in infrastructure, in a drive to treble the size of the PPP/PFI segment to ¥12 trillion over the next 10 years.
Nishimura pointed to some economic indicators to underline Japan’s revitalisation. He noted the Nikkei index had risen 76% since November 2012, while total unemployment ratio had fallen by 60 basis points last year to 3.7% while jobs-to-applicants ratio had risen 20bp to 1.03.
He highlighted five key factors that Japan was resolved to achieve:
- Sustained economic growth, with a study showing average wage increase of 2.16% across 491 corporations.
- Enlarge the foreign workforce
- Set up special economic zones, with areas set to be designated this month
- Advance Trans-Pacific Partnership negotiations and other trade pacts, featuring closer economic integration in Asia Pacific
- Reform corporate taxation
He stressed the government’s goal was to transform the third arrow of Abenomics – growth strategy – into monetary policy. “I hope you will become confident about our growth strategy,” he urged the audience. “This and regulatory reforms will take time to achieve. However, we are accelerating the reform process and are sure we can achieve [it].”
Just prior to his address, prime minister Abe had delivered a video message: “For your investment into Japan, the opportunity now unfolding is one that appears only once in decades in agriculture, in the electricity market and in the area of corporate governance.
“By the time Tokyo hosts the Olympics and Paralympics in 2020, major cities will have altered their landscapes. New markets, new service industries, one after the other, will have [started]. You will be the catalyst. We are waiting for your investment.”