Abe’s Third Arrow Proposal Fall Short of Expectations

In the months that followed the January appearance at Davos, blue-ribbon panels sought out GE and IBM for advice on how to give companies more flexibility in hiring and pay.

But the labor market deregulation to be announced on Tuesday, as part of an economic package aimed at boosting investment in Japan and lifting growth, stops far short of the sweeping change foreign business leaders had sought.

That marks a setback at a time when investor optimism about the pace of “Abenomics” reforms has ebbed. The Nikkei .N225 stock index, a closely watched indicator for Abe’s closest advisors which rose more then 50 percent in 2013 as investors cheered the first blast of Abenomics, is down 5 percent this year.

“Changes in labor regulations will be incremental. It’s a step forward, but it’s not that big,” said Robert Feldman, chief economist at Morgan Stanley MUFG in Tokyo.

The story of how Abe’s promised deregulation faltered on job market reforms when confronted by resistance from Japan’s bureaucracy and political controversy illustrates the challenge for Abe’s “Third Arrow”, a growth strategy intended to boost private investment and compliment earlier programs of fiscal stimulus and monetary expansion by the Bank of Japan.

Although Abe’s reform panel sought ideas from companies such as Ikea [IKEA.UL] and Danone (DANO.PA) in recent months, the crucial decisions were made behind closed doors by about half a dozen Tokyo bureaucrats over a few days in June, according to interviews with 11 people who participated in the process.

The result: a pledge to end compulsory overtime allowance for workers earning more than the equivalent of $100,000 per year, a change affecting less than 4 percent of Japan’s workers.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza