Abenomics Is Already Old in Japan

a | A

"No recovery without structural reform." Japan's prime minister earned plaudits with this pledge and his plans to deregulate the economy, pull more women into the workforce, lower trade barriers, cut corporate taxes, promote innovation and end deflation once and for all.

The leader in question isn't Shinzo Abe, but Junichiro Koizumi, prime minister from 2001 to 2006. Wonder why most of the enthusiasm about the reforms embodied in "Abenomics" comes from overseas, not from Japanese? The nation's 126 million people have heard it all before.

That's why Japanese weren't shocked today that Abe again delayed details for his much-awaited structural changes. Foreign investors clearly were. They have liked what they heard enough to drive the Nikkei 225 Stock Average up 25 percent this year. But they wanted Abe to use his speech today to flesh out his "third arrow" to buttress the first two, monetary and fiscal expansion. They were left disappointed.

It's a bad omen. Surely, Abe noticed the recent retreat in stocks -- the Nikkei fell 3.8 percent today -- and bond yields. Investors are anxious for details on how and when Abe will bring about broad reforms in the face of a change-averse political establishment. Abe's response: please be patient.

Why? Because it won't be easy to get his party behind all the needed reforms: reducing regulation, ending gender discrimination, loosening labor markets, improving corporate governance, welcoming more foreign talent and ending the over-reliance on nuclear power in a country that sits atop one of the world's most seismically active fault lines. Vested interests will stymie Abe at every turn, so why not just put off the battle?

Without these changes, though, Abe's legacy will be akin to Koizumi's: a well-intentioned reformer who failed to implement his vision and only provided a temporary boost to an economy plagued by deflation. Abe has another chance to lay out a program when he speaks on June 14. Will he? Or will he wait until after next month's elections or even the fall?

Koizumi's slogan, remember, was "reform without sacred cows." And credit where it's due, he did slay one of the most sacred beasts: he privatizedJapan's sprawling postal system, which served as a multitrillion-dollar piggy bank that corrupt politicians used to fund their pet projects. For a time, Koizumi was even heralded as Japan's answer to Margaret Thatcher and Ronald Reagan.

In January 2002, when Koizumi unveiled his own third arrow, he declared: "Structural reform measures have been carried out steadily since I took office. I will make an all-out effort to proceed with the policies I've followed since I became prime minister, without slowing the pace of structural reform.''

As if. Just about everything Koizumi promised was left on the drawing board. It's great that Abe is reviving those ideas, and taking things a step further by prodding the Bank of Japan to double bond purchases. It's just not clear he will have the political courage to see these reforms through. On that score, today's decision to keep investors in suspense isn't a promising sign.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Willie Pesek at wpesek@bloomberg.net