Abe’s third arrow misses target as markets doubt future reforms

SHINZO Abe, the Prime Minister of Japan, delivered a speech last night on the third part of his plan to revitalise the stagnant east-Asian economy.

The Nikkei tumbled during and after the comments, closing 3.8 per cent down, at a two month low. Analysts suggested that the structural changes proposed were not bold enough to boost a struggling nation. Abe’s policy is popularly described as having three arrows: fiscal stimulus, monetary stimulus and economic reform.

Chris Scicluna, head of economic research for Dawai Capital Markets said: “whether this really amounts to a coherent strategy consistent with generating higher productivity and employment, or is just another rag-bag of sound bites and ineffectual tinkering measures, remains to be seen”, adding, “chances are that this long-awaited strategy document will also be relatively light on substance”.

Abe promised a liberalisation of the electricity industry, along with an increase in government investment. He also suggested special economic zones and lower corporation tax to encourage investment from abroad.

Despite pledging to raise incomes by three per cent each year for a decade, Abe faces a number of challenges, not least Japan’s ageing and slowly declining population.

Capital Economics said that the response to the speech may have been a market overreaction. “It was always unrealistic to expect a Prime Ministerial speech in a Tokyo hotel to provide many more specifics than have already been revealed”.