Japan's economic recovery plan fails to impress markets
Japan's government said it aimed for economic growth of more than two per cent over the next decade, but its long-term plan unveiled yesterday lacked detail needed to convince investors the goal is realistic.
The world's second-largest economy emerged from recession in the second quarter, but persistent declines in prices and wages and ballooning public debt threatening Japan's credit rating have fuelled doubts whether the export-led recovery can be sustained.
The government said in its 30-page growth blueprint it would work with the Bank of Japan to overcome deflation as early as possible, but analysts said markets wanted to see how the authorities planned to achieve that.
"What we have at the moment is just a blueprint, a roadmap. It looks good on paper but we have to wait for details and how do they plan to implement it," said Mitul Kotecha, global head of forex strategy at Calyon in Hong Kong.
He said the fact that there was no detailed plan for tackling deflation was a matter of concern.
"Unless markets see some concrete steps being taken in that direction they will remain unconvinced about the resolve," said Kotecha.
Political commentator Minoru Morita called the strategy "a distraction", saying: "I think it will calm some of the criticism of the government, but it will at the same time spark unease.
"People may think they are promising things they have no intention of delivering. That's what happened with the election manifesto in the end."
The document did not discuss any plans to rein in public debt, expected to soar above 200 per cent of gross domestic product next year.
Leading ratings firms have warned of possible downgrades of Japanese government debt.
A Standard and Poor's analyst said its AA credit rating on Japan could be in danger if policy initiatives fail to stabilise and then gradually reduce the debt burden.
Moody's analyst struck a similar note, saying Japan's rating would largely hinge on the government's ability to stabilise its finances.
Last month ratings agency Fitch also warned that a marked increase in new borrowing might trigger a credit downgrade. Japan's 77-year-old finance minister Hirohisa Fujii, who was admitted to hospital for tests on Monday following weeks of wrangling over how the government can balance policy pledges with the need to rein in public debt in next year's budget, told reporters yesterday he was "worn out". "Frankly speaking, compiling the budget was a heavy duty," Fujii said, adding he was going back to hospital for more tests.
Asked if he will be fit enough to keep his job, he said he would follow doctors' advice.
Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here