
Success of Abenomics hinges on deregulation – Orix
The success of economic reforms introduced by Japanese Prime Minister Shinzo Abe ultimately depend on his ability to deliver on structural reform, the third of his “three arrows” policy, according to Yoshihiko Miyauchi, CEO of Orix Corp. This observation encapsulates the concerns of PE investors keen to see structural measures precipitate broader corporate restructuring, which potentially means more deal flow.
Speakers at the AVCJ Japan Forum this week noted that governance issues - specifically resistance to change within domestic corporations - could stifle the potential of structural reforms regardless of government encouragement.
"Abenomics has been good so far, and I would give almost full marks to his monetary and fiscal policies," Miyauchi told Bloomberg. Still, "a failure in releasing the third arrow could turn Japan's honeymoon into divorce."
The monetary and fiscal elements of the reforms are already being rolled out, with the Bank of Japan outlining plans for an annual inflation target of 2%, negative interest rates and increased public investment. In total, the bank plans to pump about $1.4 trillion into the economy over a two-year period.
Despite embarking on a slump in late May, the Nikkei 225 Index is still up 23% this year and private equity firms have benefited from the upward trend, with several significant IPOs.
Abe has promised to deliver a legislative growth strategy in support of monetary and fiscal stimulus by the autumn. There have also been pledges to deregulate energy, health and infrastructure and double foreign investment to $357 billion by 2020.
As a financial giant with businesses encompassing private equity, real estate and insurance, Orix has a vested interest in seeing these promises met, and the market buying into their execution. Miyauchi's view is that if the Nikkei ends 2013 at 17,000-18,000, up from the current 12,800, there will be grounds for hailing Abenomics a success.
As Nicholas Smith, Japan equity strategist with CLSA, put it to AVCJ earlier this year, without the third arrow of structural change, monetary easing will only get the economy so far. "It is a bit like a firework display - you don't need a lot of skill to light the blue touch paper and return five yards," he said.
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