Missing the bull’s eye: Abe’s third arrow contains disappointing provisions

Abenomics is losing market confidence.

The long wait is over for Japan, as its revised growth strategy was finally approved by the cabinet on Tuesday, but the wait may not be worth it as the strategy did not contain ‘game-changing’ announcements, a report by Standard Chartered says.

According to StanChart, there were no concrete details on how other key reforms would be implemented, including labour-market reform, agricultural reform, and deregulation of special economic zones.

StanChart adds that delays are not encouraged, as the market has been waiting for Abenomics to carry on a remarkable feat, which still hasn’t happened. If the government fails to present a practical corporate tax cut plan by year-end, this will assure investors that it is committed to boosting growth. Any delay would put pressure on the Bank of Japan to carry all of the burden of economic stimulus.

Here’s more:

The revised growth strategy is a modest improvement on the 2013 version, largely because of the planned corporate tax cut. However, details are vague and the timeframe for implementation is long. Proposed measures in other key reform areas, including the labour market and agriculture, are limited. Further details on the deregulation of special economic zones and energy - sector reform are absent from the strategy, which is a disappointment. The market’s focus is now likely to shift to implementation plans for the corporate tax cut. A practical and effective plan would reassure investors that the government is committed to reviving growth. However, delays would risk disappointing the market and shift more of the burden for boosting growth to the BoJ, forcing it to continue its easing cycle. If monetary policy is seen as the primary source of support for growth, this may indicate the failure of Abenomics. We maintain our view that progress on reform is likely to be gradual, with no market impact this fiscal year.