The recent decline in Japanese stocks and rise in the yen doesn’t reflect a loss of confidence in Prime Minister Shinzo Abe’s steps to reverse two decades of economic stagnation, a top aide said.
“I don’t think we have lost the trust of the markets,” Deputy Chief Cabinet Secretary Hiroshige Seko said yesterday in an interview in Tokyo. “The market is determined by corporate results and those corporate results are healthy.”
Abe today in a speech will outline his growth strategy, the “third arrow” of an economic revival plan that seeks to build on his fiscal and monetary stimulus. While investors initially welcomed the first two prongs of the policy, stocks have fallen after the biggest rally in 25 years, and the yen has risen against the dollar after hitting a four-and-a-half year low.
Seko said the growth strategy will take time to implement and bring results, adding that Abe still seeks to cut corporate taxes as part of that effort. The government is considering Economy Minister Akira Amari’s suggestion of lower taxes in special economic zones, which may be created in a bid to encourage innovation.
“It’s true corporate taxes are high, so lowering them to encourage domestic investment is one of the foundations of our government’s economic policy,” Seko said. “The timing and extent is still under negotiation.”
His comments follow reports that Abe will delay implementing corporate tax cuts. The government has put off discussion of the move until fiscal 2015, the Nikkei newspaper said on May 29, without saying where it obtained the information. Amari told reporters on May 21 that lowering corporate taxes may be difficult given the fiscal situation.
Japan is struggling to curb the world’s largest debt-to-gross domestic product ratio.
Seko sought to play down anticipation over today’s speech at 12:30 p.m., Abe’s third on growth in the past two months. The government is pushing its economic policies ahead of an upper-house election likely to be held on July 21 that media polls indicate his Liberal Democratic Party will win.
“The prime minister will not reveal everything in his speech,” Seko said. “It will be the overall framework and direction.”
The growth strategy will be completed on June 12 and voted on by the Cabinet on June 14, he said, adding that other stimulus policies will be announced later.
“Expectations are high for Abe’s growth-strategy speech, given the recent weak tone in the stock market,” said Junko Nishioka, chief economist in Tokyo at Royal Bank of Scotland Group Plc. “If his proposals are unimpressive, investors may be disappointed, which will mean the markets remain volatile.”
Investors would take a positive view of corporate tax cuts, she said by phone.
Since touching a five-year high on May 22, Japan’s Topix (TPX) index has fallen about 12 percent, while the yen has risen 3.1 percent against the dollar. Japanese shares swung between gains and losses amid low volume ahead of the speech, with the Topix falling 0.2 percent at the 11:30 a.m. close of morning trading in Tokyo. The yen was little changed at 100.11 per dollar.
Abe took office in December vowing a three-pronged strategy of Bank of Japan policy easing, government spending and policies to improve investment, wages and consumer confidence. Central bank Governor Haruhiko Kuroda unveiled a plan in April to double the amount of money in the economy over two years by increasing bond purchases, sending the yen down and stocks soaring.
“Japan has not grown for a long time,” Seko said. “It’s difficult to put together a prescription in five months for something that Japan hasn’t been able to do for 20 years.”
He denied the growth strategy would include a push on restarting nuclear power stations shut in the aftermath of the 2011 Fukushima disaster, as reported by the Asahi newspaper on May 31. Utilities have to meet the Nuclear Regulation Authority’s new safety standards, to be drawn up by July, before the idled facilities can re-open.
“The government’s basic policy has not changed at all,” Seko said. “We will re-start those reactors that are declared safe under the standards of the regulatory committee.”
The government must continue to focus on the economy for about two years after the upper-house election, rather than pursuing other LDP goals such as changing Japan’s pacifist constitution, he said.
“However high our support levels may be, there are limits to our political energy,” Seko said. “We have to focus that energy and prioritize the economy. I think that’s the consensus among the main members of the cabinet.”
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