Market headwinds raise stakes for Abe's Japan revival plan

Fri Jun 14, 2013 5:52am EDT
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By Tomasz Janowski and Kaori Kaneko

TOKYO (Reuters) - This is not how Japan's Prime Minister Shinzo Abe probably imagined reaching a key milestone in his economic revival plan.

Pro-growth measures meant to complement hefty doses of budget and monetary stimulus met with a cool reception and their formal approval on Friday coincided with turbulence in financial markets hit by sharp reversals in global capital flows.

A sense of disappointment that steps unveiled over the past several weeks left out measures such as corporate tax cuts or labor market liberalization was so apparent that it made Abe promise more after July 21 upper house elections.

"The growth strategy decided today will be the starting point," Abe said in a video message on his office's Youtube channel.

"I will ensure political stability and in the autumn I will launch the second round of the growth strategy."

The challenge for Abe and his hand-picked central bank chief Haruhiko Kuroda will be how to sustain business and consumer confidence through the rough market patch until new policies take shape and measures adopted so far bear fruit.

Both have tried to soothe nerves with assurances that the economy was improving.

Economists agree that the economy should have enough momentum to cope with market turmoil and say there is not a lot more policymakers can do besides doing what they have already promised.   Continued...

Japan's Prime Minister Shinzo Abe gestures as he delivers a speech at a seminar in Tokyo June 5, 2013. REUTERS/Toru Hanai