Japan should consider lowering its corporate tax rate as a part of its growth strategy to attract more foreign investment, an economic adviser to Prime Minister Shinzo Abe said on Friday.
Koichi Hamada, professor emeritus of economics at Yale University, also said the Central Bank should loosen monetary policy further if the yen rises further and threatens Japan’s economic recovery.
“Japan’s growth strategy needs to include steps such as cutting the corporate tax rate, together with deregulation. This needs to happen not only in special economic zones but nationwide,” Hamada said in an interview.
On the recent sharp falls in Japanese share prices, Hamada said there was no need to fret as they were a natural correction of excessively bullish bets on Prime Minister Shinzo Abe’s bold mix of fiscal and monetary stimulus – dubbed “Abenomics”.
Hamada was appointed as one of Abe’s two advisers last December after his Liberal Democratic Party was swept to power by a landslide lower house election victory.
He does not have direct power to influence economic policy but his long-held views on monetary policy as an academic, specifically that the BOJ must pump money more aggressively to beat deflation, has strongly influenced the policies of Abe and the BOJ.
Abe on Wednesday pledged to boost incomes by three per cent annually and set up special economic zones to attract foreign businesses in the latest tranche of measures, the Third Arrow in his ‘Abenomics’ strategy to spur sustainable growth.
But the measures failed to impress markets that had hoped for bolder steps like cutting Japan’s corporate tax rate, a move that is advocated by some lawmakers despite resistance within the powerful Ministry of Finance as it would lower tax revenues.
Hamada shrugged off the views of some economy watchers that the recent stock market falls reflected reduced hopes of success for Abe’s expansionary policy.
He said that it was natural that some investors who harboured excessive expectations should fall by the wayside, before adding: “I don’t think the overall market trend has changed.”
The economy was in recovery mode, and expectations for Abe’s economic policy mix were intact, he said.
The benchmark Nikkei average fell into bear market territory on Friday from a five-and-half-year high hit just over half a month ago.
And the yen recovered to as high as 95.55 to the dollar, nearly eight per cent stronger than a four-and-a-half-year low hit late last month.
Hamada, one of two official economic advisers to Abe, said the Central Bank can take action should a spike in the yen make it difficult for Japan to escape deflation.
“The BOJ can adopt more easing measures in that case. It can use more medicines, and I hardly see any problems.”