Japan's Abe to target income gains in growth strategy

TOKYO (REUTERS) - Prime Minister Shinzo Abe will pledge to boost incomes by 3 per cent annually and allow tax cuts and reduce red tape in special economic zones when he unveils the latest tranche in his growth strategy on Wednesday, Japanese media said.

An income boost is vital to the success of Abe's policies aimed at ending years of entrenched deflation and decades of economic stagnation.

The Bank of Japan's sweeping monetary expansion campaign announced in April targets achieving 2 per cent inflation in less than 2 years, and analysts say wages will have to move higher to revitalise the world's third-largest economy and put consumer prices on a sustainable upward track.

The popular prime minister, who took office last December after his party's big election win, may also call for the nation's public funds to boost their investment in equities and overseas assets to seek higher returns, sources have said.

Financial market players are keen to see details of Abe's growth strategy, the "Third Arrow" in his "Abenomics" prescription aimed at ending nearly two decades of deflation and spurring sustainable growth.

The first two "arrows" are hyper-easy monetary policy and big government spending.

The Nikkei business daily said Abe, who is set to deliver a speech on the growth strategy from around 12:30 p.m. (11:30am) on Wednesday, would target annual gains of 3 per cent or more in gross national income per capital, increasing incomes by more than 1.5 million yen (S$18,780 ) over 10 years from 3.84 million yen in the year ended March 2013.

Annual income growth of 2 per cent would be needed to ensure that consumers' purchasing power is not eroded when Japan hits its 2 percent inflation target.

Investors have not given up hope that Abe's policies will end the country's prolonged economic stagnation, but a note of caution has crept in since Tokyo share prices began to slide on May 23 after months of heady gains. The stock price falls are also a worry to Abe's government ahead of a July 21 upper house election his party needs to win to cement his grip on power.

The benchmark Nikkei stock average, had soared to a 5-1/2-year peak after rising 53 per cent since the end of 2012, but then lost 15 percent as of the close on Tuesday.

The yen traded around 100 yen against the dollar on Wednesday, after having fallen to 4-1/2-year low of 103.74 yen late last month.

Special economic zones in Tokyo and other big cities will be allowed to introduce corporate tax cuts and ease regulations to attract foreign and other businesses, the media reports said.

The government is also expected to allow the sale over the Internet of most over-the-counter drugs as a model case of deregulation.

Abe has said deregulation is the top priority for boosting growth but the package of steps - to be approved by the cabinet on June 14 along with macro-economic guidelines - is unlikely to include bold reforms in areas such as labour mobility and nationwide corporate taxes.

Japan has already vowed to increase domestic private investment over the next three years and target private-sector investment of 70 trillion yen annually, the level before the 2008 financial crisis and up about 10 percent from current levels.

The government also aims to triple infrastructure exports to 30 trillion yen, double farm exports by 2020 and has set a goal of having 70 per cent of exports covered by free trade deals by 2018, compared with around 19 per cent now, by pushing participation in the US-led Trans-Pacific Economic Partnership (TPP) and other trade deals.

Japan's economy expanded in the first quarter at the fastest pace in a year, outstripping growth in the United States, as Abe pursued his fiscal spending and aggressive monetary stimulus.