Abe’s Special Zones to Fuel Economic Reform, Hatta Says

Japanese Prime Minister Shinzo Abe’s reforms may be aided by excluding the agriculture, trade and welfare ministries from oversight of special economic zones, according to the head of a working group on the plans.

“Abe sees the strategic special zones as the heart of regulatory reforms,” Tatsuo Hatta, 70, said in an interview in Tokyo on Oct. 26. The prime minister is aware that the public is “fed up” over the sway that vested interests have had over policy in Japan, Hatta said.

Investors are trying to assess the strength of Abe’s commitment to the so-called Third Arrow of Abenomics, deregulation and economic reforms intended to sustain growth after the initial jolt from monetary and fiscal stimulus wears off. The zones would be areas where the government can experiment with reforms in the labor market, health care and agriculture as Abe tries to end 15 years of deflation.

While the structure of the council is yet to be finalized, it will be chaired by Abe and is likely to exclude the regulatory ministries, Hatta said. That could make it harder for such agencies to limit reform efforts. The zones will be the “engine” of reforms, he said.

The Topix index of stocks surged more than 60 percent from October last year, while the yen tumbled 20 percent against the dollar on Abe’s pledges for bold action to drive an exit from deflation and the Bank of Japan’s unprecedented monetary easing. Now, investors are waiting for Abe to further flesh out plans for the so-called Third Arrow.

Limited Progress

The Topix index was down 0.7 percent at 12:39 p.m. in Tokyo, paring yesterday’s biggest gain in five weeks, as the yen advanced amid expectations the U.S. will maintain stimulus. The Japanese currency rose 0.2 percent to 97.49 per dollar.

UBS AG economist Daiju Aoki said last week that after a “disappointing lack of progress” on the special zones, the structure of the special-zone council demonstrated Abe’s commitment to the project. The government aims to submit a bill on the zones to the Diet next month.

Asked about proposals for labor-law reforms in the special zones, Hatta said it had been “unrealistic” to expect changes that made firing workers “easy.”

In the interview, Hatta referred to vested interests such as in agriculture, labor and health care. He said the council’s legal status, ranking above some other entities set up by Cabinet order, and the prime minister’s leadership will give it extra clout. If hurdles emerge in the process of implementing reforms in the zones, the council will be able to act swiftly to change regulations to make them more effective, Hatta said.

Industrial Promotion

Gree Inc. was among several companies that proposed zones or business plans related to the special areas, according to the website of the prime minister’s office, which listed 62 ideas. Among the proposed zones were a special agricultural zone in Ibaraki Prefecture, and a manufacturing and craftwork zone covering regions including Nagoya, the home of Toyota Motor Corp., and Hamamatsu City, the home of Suzuki Motor Corp.

The reform areas will include methods to make it easier for farmers to borrow, meaning that the “financing monopoly” of agricultural cooperatives will collapse, at least within the zones, Hatta said.

A bill to create the zones will be presented to the current session of the Diet. A majority in both houses of parliament until elections set for 2016 gives Abe better odds of pushing his policies through.

Improving Data

Japan needs to get on a steady growth path, not just to implement stimulus, Jerald Schiff, the International Monetary Fund’s Japan mission chief, said in an interview with Bloomberg TV. Schiff said he’s concerned about complacency in the Japanese government.

Economic data released today showed improvement in the world’s third-biggest economy. Confidence of small businesses rose in October to the highest since November 2006, according to Shoko Chukin Bank. The diffusion index increased to 50.8 from 49.8 in September, the first time since March 2007 that more companies were optimistic than pessimistic.

Japan’s household spending rose 3.7 percent in September from a year earlier, more than a median 0.5 percent increase estimated by economists surveyed by Bloomberg News, and the biggest gain since March. Retail sales climbed 1.8 percent in September from the previous month, more than an estimated 0.5 percent rise and the steepest gain in more than two years.

Japan’s jobless rate declined to 4 percent in the same month from 4.1 percent in August, in line with the median forecast, according to government data today.

While Japan is trying to generate inflation, India raised interest rates today after price gains unexpectedly accelerated to the fastest pace in seven months in September. Monetary policy must tackle elevated inflation even as growth remains “tepid,” the Reserve Bank of India said yesterday.

Elsewhere in Asia, South Korea’s current account surplus expanded to $6.57 billion in September.

U.K. mortgage approvals probably rose in September, and U.S. consumer confidence likely fell in October, according to separate surveys ahead of data due today. The Federal Reserve meets today for the first day of a two-day meeting.

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