Japan's Abe to advance reforms with free trade decision

Wed Feb 27, 2013 7:14am EST
 

By Kaori Kaneko and Linda Sieg

TOKYO (Reuters) - Japanese Prime Minister Shinzo Abe appears poised to raise the curtain on Act Three of his "Abenomics" drama with a decision to join talks on a U.S.-led free trade pact, seen by some as a test of his appetite for vital economic reform.

Abe's first two acts - big spending and a push for hyper-easy monetary policy aimed at reviving the economy - have met little political opposition, since few vested interests are harmed.

The next installment on structural reform - or as Abe prefers to call it, the "Third Arrow" in his policy quiver - now looks likely to begin with a decision in coming weeks to join talks on the Trans-Pacific Partnership (TPP), Japanese media say.

Financial markets are taking the expected decision as a sign that Abe - not known as an economic reformer in the past - is committed to opening Japan's economy, even at the expense of supporters of his conservative party, including those in the powerful farming lobby.

"I think it is sort of a test case whether Abe can push through reforms against certain interests in favor of others," said Robert Feldman, chief economist at Morgan Stanley MUFG in Tokyo. "He's delivered on monetary policy, now he'll have delivered on a politically difficult reform."

Echoing that sentiment, Nomura Securities this week raised its forecast for the Nikkei share average to 14,500 by the end of this year from an earlier 12,500, mostly on TPP hopes. That suggests a rise of 28 percent from current levels.

Skeptics, however, questioned whether joining the trade talks would really signal Abe's commitment to economic reform.

"He wants to tick the right boxes politically. He wants to project the image of a reformer," said Aurelia George Mulgan, a professor of Japanese politics at the University of New South Wales. "Whether he has the convictions, beliefs and ability to deliver in the areas that are required for economic growth is a big question mark. My answer is 'No'," Mulgan said.   Continued...

 
A man walks between a a container ship and its landing pier at a port in Tokyo February 27, 2013. Japanese Prime Minister Shinzo Abe appears poised to raise the curtain on Act Three of his "Abenomics" drama with a decision to join talks on a U.S.-led free trade pact, seen by some as a test of his appetite for vital economic reform. REUTERS/Yuya Shino