TOKYO (Reuters) - Prime Minister Shinzo Abe announced on Friday that Tokyo will seek to join talks on a U.S.-led Pacific free trade pact which proponents say will help tap vibrant regional growth, open Japan to tougher competition and create momentum for reforms needed to revive the long-stagnant economy.
The decision to join talks on the Trans-Pacific Partnership (TPP) launches the "third arrow" in Abe's policy triad following the fiscal pump priming and hyper-easy monetary measures he has pushed since returning to office in December after his Liberal Democratic Party's (LDP) big election win.
"Emerging countries in Asia are shifting to an open economy one after another. If Japan alone remains an inward-looking economy, there would be no chance for growth," Abe told a news conference.
"This is our last chance. If we miss this opportunity, Japan will be left behind."
The government estimates that joining the TPP will boost Japan's gross domestic product by 3.2 trillion yen ($33.3 billion), or 0.66 percentage points, offsetting the negative impact on agriculture by boosting exports in other sectors and domestic private consumption.
"Abenomics" has been playing to rave reviews in the Tokyo stock market and with voters, around 70 percent of whom support the prime minister.
Business executives and economists say the real test, though, will be whether Abe buckles down to more controversial reforms such as deregulation, which can hurt vested interests.
"TPP could be a trigger for Japan to implement deregulation in various sectors by using external pressure," said Hideo Kumamo, chief economist at Dai-ichi Life Research Institute.
"It is being seen as a way to stimulate the economy by making the nation more competitive."
The United States and 10 other countries are pushing for a deal by the end of the year and possibly as soon as an Asia-Pacific leaders summit in Bali in October.
Much of the attention has focused on political hot-button issues such as scrapping tariffs on farm products and textiles.
But negotiators are also grappling with thorny matters such as rules on disputes between companies and governments, state-owned enterprises, copyright protection, access to financial and other service sectors, cross-border transfer of electronic data and protection for workers from trade-related fallout.
Hurdles remain to Japan's entry to the talks. Tokyo must first hold bilateral meetings with existing members and be supported by a consensus to "keep up the good momentum" as the countries prepare for the next talks in Peru, said Singapore negotiator Ng Bee Kim after the 16th round of the three-year-old talks ended on Wednesday.
Other countries in the trade talks include Canada, Mexico, Australia, New Zealand, Chile, Peru, Vietnam, Malaysia and Brunei.
The ratio of Japan's trade covered by free trade agreements was about 19 percent in 2011, compared with 35 percent for South Korea, 38 percent in the United States and 32 percent in the European Union, according to the most recent government data.
"It's a mistake to think that TPP is just aimed at stimulating free trade," Lawson Inc CEO Takeshi Niinami, a member of a government panel on competitiveness, told Reuters last week.
"This will create a huge opportunity for revitalizing Japan."
Japanese big business wants Tokyo to join the pact to keep from falling further behind rivals such as China and South Korea, while traditional LDP supporters such as farmers are generally opposed.
An LDP panel on Thursday gave Abe a resolution calling for protection of sensitive items such as agriculture products and Japan's universal healthcare system and demanding that the government withdraw from the trade talks if it cannot.
With strong approval ratings for now, Abe appears to be betting he can decide to join the TPP talks even if at the risk of angering some voters ahead of a July upper house poll that his ruling bloc needs to win to cement its grip on power.
Economists said the immediate economic impact of joining TPP would likely be limited but that taking part would allow Japan to help set the rules.
Two of Abe's predecessors from the now-opposition Democratic Party of Japan promoted the idea of joining TPP but were unable to get full backing from their party. Abe could fare better.
"He is a unifying force and I think the environment is such that LDP lawmakers find it hard to disagree strongly," a government official said.
($1 = 96.1200 Japanese yen)
Writing by Linda Sieg; Editing by Kim Coghill and Sanjeev Miglani