October 4, 2015 / 9:02 PM / 5 years ago

RPT-As election nears, Abe turns to new crowd-pleasing "arrows"

(Repeats story that ran late Friday with no changes to text)
    * Abe's party wary of losing seats in next year's election
    * Monetary policy going on back burner
    * New policies focused on boosting GDP, fertility rate,
social welfare
    * GDP target criticised as "unrealistic"

    By Leika Kihara
    TOKYO, Oct 2 (Reuters) - Prime Minister Shinzo Abe is
rewriting "Abenomics", shifting his focus away from long-term
structural reforms to quick-fix crowd-pleasing measures as he
looks to boost popular support ahead of upper house elections
next year, sources say.
    That means the government will look at bringing in fresh
fiscal stimulus measures later this year, while the Bank of
Japan will struggle to win the argument that it should ease
monetary policy to meet its inflation target, say lawmakers and
politicians with knowledge of the deliberations.
    While Abe's Liberal Democratic Party is unlikely to lose
power next year, members are nervous that it could shed some
seats after passing controversial defence bills, so want to
avoid any policies that would dent their support base.  
    "Further monetary steps would clearly go against the
government's objectives," one government official said, with
people blaming the BOJ's easing for driving up imported food
costs.    
    Abe deployed three policy "arrows" in 2013, dubbed
"Abenomics", to try to stimulate the economy. The first two
arrows of bold monetary easing and fiscal stimulus helped
brighten business sentiment and revive growth by weakening the
yen and boosting stock prices.
    But progress on the third arrow - deregulation and reforms
to boost Japan's long-term growth potential - has been slow. A
sales tax hike pushed Japan into recession last year and growth
has stagnated for much of this year as China's slowdown and
rising food costs hurt exports and household spending.
    
    NEW ARROWS
    Disappointed over companies' reluctance to raise wages and
wary of weak consumption, Abe is turning his sights to
low-income households and pensioners.
    With three new "arrows", crafted not by economic mandarins
but by political advisers, Abe hopes he can boost household
spending and increase his approval ratings with handouts. 
    The arrows consist of a target to boost gross domestic
product (GDP) to 600 trillion yen ($5 trillion), lift the
fertility rate and pursue social welfare reforms.
    Abe has said the new arrows aim to tackle structural
problems left unaddressed for years, such as the labour shortage
that is set to worsen as the population ages rapidly.
    But lawmakers familiar with the new "Abenomics" say the last
two arrows are aimed at justifying more spending on child-care
support, such as offering free early-child education, and
building more nursing homes for the elderly.
    "The new arrows focus on redistribution of wealth mainly
through child-care support and social welfare, because they are
areas the public can relate to," said Etsuro Honda, one of Abe's
key economic advisers.
    The government could decide as early as this month on
whether to take fresh stimulus steps, rather than wait for the
release of July-September GDP data next month, a government
source close to the administration said.
    
    CRITICISM
    Business lobbies and academics criticise the GDP target as
unrealistic, and say the new arrows lack the clear messaging
that made the original arrows so effective.
    The growth target is based on a government estimate that
Japan's GDP will reach 600 trillion yen around 2020 if it grows
a nominal 3 percent each year - a pace never experienced in the
past two decades.
    "I won't even call these arrows economic policy," said a
lawmaker who is among Abe's economic advisers.
    "It has the smell of election campaigning."   
    The new arrows also shed light on an emerging conflict of
interest between Abe and his hand-picked BOJ governor Haruhiko
Kuroda.
    Kuroda's massive stimulus is based on the "reflationalist"
idea that by printing money aggressively, the BOJ can generate
inflation and nudge companies into boosting spending.
    But inflation has ground to a halt on slumping oil prices,
while rising import costs from a weak yen have hurt consumption.
    Wary of the rising cost and diminishing returns of Kuroda's
stimulus programme, Abe is starting to distance himself from the
BOJ's reflationist approach, politicians close to him say.
    The new arrows make no mention of monetary policy. While
Finance Minister Taro Aso and Kuroda say it has been "condensed"
into the new GDP target, the BOJ's fading prominence underscores
Abe's changing priorities, politicians say.
    "It's clear the administration's priority has shifted away
from monetary policy," said a policymaker close to Abe.
    The premier told an audience in New York on Tuesday that
Japan has wiped out its "deflationary mindset," a day after
Kuroda warned in a speech that it was taking time for companies
to shift from their deflationary way of thinking.
 
    The contrast underscores the gap between the views of Abe -
who feels that inflation need not accelerate further - and
Kuroda, who persists on hitting 2 percent inflation, sources
say.
    "The premier is probably saying the BOJ doesn't need to rush
in achieving its 2 percent price target," said one government
official with knowledge of the deliberations.
 ($1 = 119.9500 yen)

    
 (Additional reporting by Tetsushi Kajimoto, Sumio Ito, Takashi
Umekawa, Linda Sieg and Izumi Nakagawa; Editing by Rachel
Armstrong)
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