Abe’s Special Zones to Fuel Economic Reform, Hatta Says

Japanese Prime Minister Shinzo Abe’s reforms may be aided by excluding the agriculture, trade and welfare ministries from oversight of special economic zones, according to the head of a working group on the plans.

“Abe sees the strategic special zones as the heart of regulatory reforms,” Tatsuo Hatta, 70, said in an interview in Tokyo on Oct. 26. The prime minister is aware that the public is “fed up” over the sway

that vested interests have had over policy in Japan, Hatta said. Investors are trying to assess the strength of Abe’s commitment to the so-called Third Arrow of Abenomics, deregulation and economic reforms intended to sustain growth after the initial jolt from monetary and fiscal stimulus wears off. The zones would be areas where the government can experiment with reforms in the labor market, health care and agriculture as Abe tries to end 15 years of deflation.

While the structure of the council is yet to be finalized, it will be chaired by Abe and is likely to exclude the regulatory ministries, Hatta said. That could make it harder for such agencies to limit reform efforts. The zones will be the “engine” of reforms, he said.

The Topix index of stocks surged more than 60 percent from October last year, while the yen tumbled 20 percent against the dollar on Abe’s pledges for bold action to drive an exit from deflation and the Bank of Japan’s unprecedented monetary easing. Now, investors are waiting for Abe to further flesh out plans for the so-called Third Arrow. The Topix index was down 0.7 percent at 12:39 p.m. in Tokyo, paring yesterday’s biggest gain in five weeks, as the yen advanced amid expectations the U.S. will maintain stimulus. The Japanese currency rose 0.2 percent to 97.49 per dollar.

UBS AG economist Daiju Aoki said last week that after a “disappointing lack of progress” on the special zones, the structure of the special-zone council demonstrated Abe’s commitment to the project. The government aims to submit a bill on the zones to the Diet next month.

Asked about proposals for labor-law reforms in the special zones, Hatta said it had been “unrealistic” to expect changes that made firing workers “easy.”

In the interview, Hatta referred to vested interests such as in agriculture, labor and health care. He said the council’s legal status, ranking above some other entities set up by Cabinet order, and the prime minister’s leadership will give it extra clout. If hurdles emerge in the process of implementing reforms in the zones, the council will be able to act swiftly to change regulations to make them more effective, Hatta said.