“Abenomics” is Progressing!


1. Latest Developments in the Implementation of the Third Arrow of Abenomics

Latest Information on the Implementation of the Abenomics

  • Reduction of the effective corporate tax rate The Government has decided to lower the effective corporate tax rate by 2.4% from April 2014 (from 38.0% to 35.6%).
  • Radical structural reforms are underway in a number of sectors
    • 1)

      Agricultural reform: The Government has decided to abolish the rice production regulation scheme, known as 'Gentan', through which the Government has for the last 40 years provided farmers with subsidies for reduced rice production. A major reform plan that includes the abolition of the Gentan scheme has been decided to improve productivity and enhance competitiveness.

    • 2)

      Online sales of non-prescription drugs: Revised legislation was enacted allowing the online sale of virtually all non-prescription drugs in order to increase consumer convenience.

    • 3)

      Electricity System reform: Revised legislation was enacted facilitating implementation of the first step (expansion of delivery between regions) of the three-step electricity reforms that will facilitate a fair and competitive retail electricity market.

  • Roadmap for the reforms of public and quasi-public funds such as GPIF has been provided. A panel of experts chaired by Dr. Takatoshi Ito, a professor of the Graduate School of University of Tokyo, presented a reform plan proposal for the implementation of public and quasi-public funds such as GPIF (Government Pension Investment Fund). As per this proposal, reforms including revision of the current portfolio, which relies heavily on domestic bonds, will be undertaken.
  • The fiscal 2014 budget proposal reduces the budget deficit, while the primary balance deficit will improve faster than the medium term goal.

Review of Rice Production Regulations

  • Rice production regulations, which have been in place for more than 40 years, will be reviewed and production allocations and volume targets will be abolished within five years.
  • Furthermore, production of strategic crops such as wheat, soy bean and feed rice will be promoted, as will the establishment of a Japanese-style direct payment system that focuses on multilateral functions of rice paddies such as flood control.
  • All policies will be mobilized to increase the competitiveness of the agriculture industry and double the incomes of the agriculture industry and agricultural communities.
Revision of Rice Production Regulations

The Government gives each farmer a rice production target and provides subsidies to achieve these goals.

Production allocations and volume targets will be abolished within five years to enable each farmer to produce rice at their own discretion.

Promotion of Strategic Crops

Due to production regulations, crop conversion from rice for human consumption is being encouraged.

Led by concept of market-in production, the Government will assist improvements in productivity and value of wheat, soy bean, feed rice and other crops. Active utilization of rice paddies that have been underutilized due to production regulations will be sought.

Review of the Ban on Online Sales of Non-prescription Drugs

  • The revised Pharmaceutical Affairs Act was enacted during the extraordinary Diet session which enabled the online sale of all non-prescription drugs with a few exceptions*.
  • This will provide consumers with greater purchase options and enhanced convenience. Establishing the internet as the new element of economic infrastructure will create new industries and spur innovation.


    Exceptions include (1) 23 items that have recently been transferred to non-prescription drugs. ; and (2) five dangerous drugs. However, the former 23 items will be eligible for online sales within three years after their safety has been confirmed. The latter 5 items must be sold over- the-counter, four of which are medications to improve sexual dysfunction, and their convenient sales may not be welcomed.

Electricity System Reform

  • The first fundamental reform in 60 years. The reform will involve three steps and is expected to be completed by 2020 at the latest.
  • Entry of businesses from other industries and regions into the electricity industry is encouraged to expand options for customers and opportunities for businesses. It is also expected that this will lower electricity prices and contribute to stable supply.
Step 1: Expand use of the nationwide grid (to be undertaken approximately by 2015)
This will allow more flexibility in balancing power needs between regions in order to ensure supply when power demand and supply is tight.(A bill was passed during the extraordinary Diet session in Autumn 2013)

Step 2: Complete liberalization of the retail electricity sector (to be undertaken approximately by 2016)
This will allow consumers to choose their supplier and charging system. (A bill is expected to be submitted to the ordinary Diet session in 2014)

Step 3: Establish legal separation between electricity generators and distributors and abolish retail price regulation.(to be undertaken approximately between 2018 and 2020)
Separate the generators and distributors into independent and neutral entities to allow an accessible and independent power grid. Furthermore, the retail price of electricity will be completely liberalized to ensure competitive electricity pricing.(A bill is sought to be submitted to the ordinary Diet session in 2015)

Reform of Public and Quasi-Public Fund Investment

The investment of public and quasi-public funds including GPIF and other funds that amount to assets totaling in excess of 200 trillion yen will be revised as per the below policies.

Overview of recommendations by an expert panel chaired by Dr. Takatoshi Ito, a professor of the Graduate School of University of Tokyo (November 20, 2013)

1. Investment Targets and Policies
  • Considering the current situation of the Japanese economy which is shifting from deflation to a mild inflationary environment, current investment portfolios investing heavily in domestic bonds need to be revised.
  • It is necessary to appropriately set investment return targets, as well as to consider the risk tolerance.
2. Portfolios
  • Portfolios should be diversified by investing in new types of assets (including real estate investment trusts, real estate, infrastructure, venture capitals, private equities and commodities).
  • Consideration should be made to increase the ratio of active investments.
  • Higher returns should be aimed at by selecting benchmarks ingeniously.Funds should consider improvements including using other indexes that enable more efficient investment (e.g. the use of a new stock index that takes into account factors such as return on equity (ROE)).
3. Improving Governance and Risk Management Structure
  • Decisions on key investment should be made under a collegial decision-making system, where full-time experts with consideration given to conflict of interest, play a central role in collegially making decisions.
  • In order to diversify investments and to enhance risk management, it is essential for each fund to introduce leading experts and take measures such as dedicated pay systems for those experts.
4. Maximizing Returns on Equity Assets
  • On the basis of the ongoing consideration of the Japanese Stewardship Code, each fund needs to publish a policy about close dialogues with investment targets and appropriate exercise of voting rights.