Takenaka Sees Japan Deregulation Pushing Nikkei Past 18,000

Japanese stocks could surpass a level not seen since 2007 if the government pushes through in its drive to loosen business regulations, said Heizo Takenaka, a member of a government council on special economic zones.

“Stocks have surged considerably but they can still improve if policies are implemented properly,” Takenaka, 62, said in an interview yesterday in Tokyo. The Nikkei 225 Stock Average “could easily exceed 18,000 in light of Japan’s economic strength,” said Takenaka, who in the early 2000s spearheaded Japan’s response to a banking crisis.

The benchmark index surged 57 percent last year, its biggest annual advance since 1972, after Prime Minister Shinzo Abe spurred the unleashing of monetary and fiscal stimulus. Parliament last month passed a bill to establish zones in which the government can experiment with deregulation -- a pillar of Abe’s growth strategy aimed at invigorating business.

“The government needs to pursue the loosening of bedrock regulations such as accepting more foreign workers,” said Takenaka. Labor market deregulation is a high priority in the zones, and a range of working practices should be recognized to encourage an increased participation of women and elderly people in the workforce, he said.

The Nikkei last topped the 18,000 mark in July 2007 and was trading at 15,972.72 as of 9:03 a.m. today.

Special Zones

Takenaka is one of five private-sector members of the council chaired by Abe that held its first meeting this week. The government may decide in March where it will locate the zones, Abe said Jan 7.

“Reforms are progressing as far as the special economic zones are concerned,” Takenaka said. Reductions in the corporate tax rate will be included in the broader deregulation agenda for the zones, he said.

The yen has fallen 17 percent against the dollar in the past 12 months, touching its lowest level since October 2008 on Jan 2. It was at 104.80 as of 9:03 a.m.

The yen has not yet completed its correction from an excessive appreciation over the past few years, Takenaka said, adding that it could weaken further based on Japan’s economic fundamentals.

The Bank of Japan’s announcement of unprecedented easing in April last year in pursuit of a 2 percent inflation target has helped underpin stock prices and sustain the yen’s decline.

Even so, the nation may suffer a one-quarter contraction in the three months through June after an increase in the sales tax in April to 8 percent from 5 percent now.

’Free Hand’

BOJ Governor Haruhiko Kuroda said in December that Japan’s economy will continue a moderate recovery even with the tax rise. The central bank will monitor risks and adjust monetary policy as needed, he said.

Takenaka said the BOJ should keep a “free hand” to ease further depending on economic conditions after the tax increase.

Japan’s inflation accelerated to the fastest pace since 2008 in November, bringing the rate closer to the central bank’s target. The price gains threaten to erode household spending power unless employers raise wages.

Takenaka said yesterday that it was important for wages to rise to spur a “virtuous economic cycle,” using the same language as Abe, who is pressing business leaders to boost salaries.

Takenaka, a professor at Keio University, was economic and fiscal policy minister from April 2001 to October 2005 under former Prime Minister Junichiro Koizumi. He crafted a program to halve the ratio of banks’ nonperforming loans in response to a banking crisis during this period.

Before it's here, it's on the Bloomberg Terminal.