Abe faces host of economic challenges

August 4, 2017

TOKYO- Japanese Prime Minister Shinzo Abe still faces a host of tough economic challenges after he shuffled his cabinet on Thursday.

He needs to redouble efforts to spread benefits from the economic recovery across the country, create new growth industries and boost productivity in order to overcome deflation.

While favorable corporate earnings have contributed to improved employment conditions, personal spending still lacks strength, economists said.

The fight against deflation has been the toughest challenge for Abe since he became prime minister in December 2012. The Bank of Japan has yet to achieve its 2 percent inflation target.

The central bank is expected to continue its accommodative monetary policy, but may face growing pressure to reverse course. "The BOJ should start normalizing its monetary policy," said Hisashi Yamada, chief economist at the Japan Research Institute.

On the back of the yen's weakening, major Japanese companies have been enjoying strong earnings. But many people have yet to feel real benefits from the economic recovery.

To spread the effects of economic growth to regional economies, the Abe government plans to step up support for small and midsize companies as well as farmers.

Specifically, the government aims to quadruple the proportion of companies adopting systems to enhance business efficiency to 40 percenct of some 4.2 million small and midsize firms across the country in five years.

The government plans to promote efforts to make agriculture a growth industry through the increased use of information technology. It aims to nearly double the size of the farm market to 10 trillion yen in fiscal 2020 from five years before.

The government also intends to accelerate work-style reforms in the hope of boosting wages and smoothing the way for a planned consumption tax increase to 10 percent from 8 percent in October 2019.

In addition, the government needs to secure funds for growth at a time when the country is facing increased social security expenditures and costs to redeem government bonds. Jiji Press