When Japanese Prime Minister Shinzo Abe fired the “third arrow” of his economic reform program in June, the initial response was that he had retreated before special interests, and that his proposals were far less radical than the situation demands.
Those criticisms remain, but there is growing acceptance that Abe's steps, however tentative, will gather momentum and change for the better the structure of Japan's economy. In the context of Japan's adamantine social and business cultures, Abe's reforms are more radical and the long-term implications more profound than is immediately apparent to those steeped in the North Atlantic's freewheeling ways.
It is as well to keep in mind that, when circumstances dictate, Japan has always made radical changes in direction. It did it after defeat in the Second World War and, more telling in this situation, it swiftly abandoned feudalism and embraced industrialization in the Meiji restoration of the late 1860s.
Japan has stumbled through the last two and a half decades, comforting itself with its continuing status as the world's second-largest economy. Yet while it has been well aware that something was seriously wrong, it could not rouse the will to address the failings in its structure. The unavoidable wake-up call has come with the rise of China, its overtaking of Japan in the global economic rankings and, increasingly, as a political and overt military force in Asia.
Abe returned to office in late 2012, and the first two arrows of his “Abenomics” program, aimed at restoring the vigour, competitiveness and thirst for innovation in the Japanese economy, started well.
A massive injection of government investment, and an increase in the money supply to create a small but stimulating level of inflation, worked as intended.
But when, in June last year, Abe took his first stab at confronting the special interests that benefit from Japan's creaking barriers to economic revitalization, the third arrow was a misfire.
Abe's second shot with the third arrow, fired in the last week of June this year, still does not have the bold élan that many outsiders would like to see. But it includes significant shifts in perception that will change the way Japan's economic culture works.
A prime objective is to change Japan's stodgy and increasingly unproductive corporate governance. There are moves to prod Japanese companies to reinvest their profits, all too often kept in unproductive cash, in new enterprises by enabling greater returns on equity.
Shareholders, especially institutional investors, are being encouraged to monitor company management more closely and demand better returns. Japan's corporate tax is one of the highest among rich countries and is to be lowered in stages to attract both domestic and foreign investment.
Still to be addressed is Japan's distorted employment market. A core of Japanese workers have lifetime employment, though about five million are unproductive but cannot be laid off. At the same time, about two-fifths of Japan's employees have only irregular, low-paid jobs without any security or benefits. Inevitably, these are mostly young, new entrants into the job market.
There is a lot of emphasis on freeing up Japan's notoriously restrictive health-care and pharmaceutical sector, thus redefining the country's rapidly aging population as an asset.
Time ripe for Canada-Japan free trade deal
It was undoubtedly a sign of the way the winds are blowing that Foreign Affairs Minister John Baird didn't bother mentioning the troubled Trans-Pacific Partnership (TPP) free trade agreement negotiations in his keynote speech in Japan last week.
Instead, speaking to the powerful Keidanren confederation of Japanese industry, Baird tub-thumped for the continuing negotiations aimed at securing a Canada-Japan Economic Partnership Agreement (CJEPA), whose sixth round of talks began in Ottawa soon after he spoke in Tokyo on Monday.
The bilateral CJEPA is undoubtedly a more achievable accord than the 12-nation TPP, which is struggling with some deep-seated divisions. However, the TPP is most likely to founder on the inability of the withering administration of United States President Barack Obama to obtain approval from Congress for “fast track” treaty approval.
The stars are now better aligned to shine on a Canada-Japan free trade agreement than they have been for many years. All too often in the past Tokyo has been hot for a deal when Ottawa's affections have cooled, and then vice versa.
But now the two countries' passion has coincided and comes, as Baird made a point of underlining, as Canada has just concluded a free trade agreement with South Korea, an increasingly important export-market competitor for Japanese manufacturing industries.
Baird emphasized that shared political and diplomatic cultures, as well as largely complementary economies, make Japan Canada's most important Asian partner. Japan is by far Canada's largest bilateral investment partner in Asia, he said, adding that a 2012 report predicted CJEPA would add billions of dollars to two-way trade, which stood at nearly $25 billion last year. He was, however, too polite to mention that the report estimated CJEPA will boost Canada's exports to Japan by $9 billion with only $4.9 billion coming in the other direction.
