Japan govt confident over 'third arrow' growth package, shrugs off Nikkei slump

TOKYO (AFP) - The Japanese government shrugged off stock market gyrations on Thursday, saying a raft of reforms including tax breaks for firms wanting to invest would boost the economy.

As the Nikkei 225 began another precipitous drop that saw it close the day 6.35 per cent lower than it started, Chief Cabinet Secretary Yoshihide Suga said the world's third largest economy remained on a path to recovery.

"Our nation's economy is steadily picking up," he told a briefing in the morning.

"The real economy and leading indicators are improving. We want to continue to manage the economy with confidence," he said.

The government of Prime Minister Shinzo Abe will on Friday vote on the so-called "third-arrow" of his programme of growth and reforms, in a scheme dubbed "Abenomics".

The two earlier "arrows" came in forms of aggressive monetary easing and massive public spending aimed at ending years of vigour-sapping deflation.

The draft proposals place emphasis on medium to long-term goals that Mr Abe hopes will generate 2 per cent real GDP growth annually over the next decade, far outstripping the rate in the last ten years.

It promises major investment tax breaks, the creation of special economic zones and boosting the employment of women and the elderly, among a wide-range of other initiatives.

It also aims to shift labour to growth sectors, increase exports of infrastructure, and to enhance medical services.

The cabinet will officially approve the measures on Friday, as the government prepares for an important upper house election in mid July.

Some analysts have criticised the growth policies as lacking details, a viewpoint some say is borne-out by the wild fluctuations on the Tokyo stock exchange in recent weeks, as a fast-running bull market has switched to a bear.

But participants say worries over a quick end to the huge monetary easing programme in the United States is the main driver, pushing the yen higher as players sell yen and seek safety in the currency.

Japanese economists welcomed Abe's new offers, saying it signals the conservative premier's continued commitment to an economic agenda.

"The investment tax break is significant. The government is showing its resolve to stick to its economic policies," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

Recent plunges of Tokyo stocks are largely a reaction to inflated hopes for the earlier central bank monetary easing, and less to do with the growth measures, he said.

But the market's wild volatility could serve as a reminder for the Abe cabinet to keep its eyes on the economy even after the election, in which the ruling bloc is expected to perform well, Mr Kumano said.

Mr Hiromichi Shirakawa, an economist at Credit Suisse, said the market's gyrations may have pushed the government to firm up plans for an investment break.

"We positively view the government's announcement it will be offering dramatic investment tax breaks," he said.

Private investments could boost the economy in the medium to long-term and should moderate negative impacts from the low birth rate and ageing population, Mr Shirakawa added.