After two decades of stagnation, Japan's economy will not transform overnight, but the structural reforms unleashed by Prime Minister Shinzo Abe have borne some fruit.
Mr Yasutoshi Nishimura, a state minister in the Japanese Cabinet, noted yesterday that capital investments made by Japan's private sector have risen 7 per cent, while full-year net profits posted by listed firms totalled a record high of 21.3 trillion yen (S$252 billion) in March this year.
Japan's unemployment rate, at 3.3 per cent in July, is at its lowest level in 18 years, while wage growth has outpaced inflation for the first time in two years.
Mr Nishimura was speaking to about 100 business leaders and finance professionals at a seminar in Singapore focused on the progress made by the "third arrow" of the so-called Abenomics plan. Measures introduced in 2012 under this third arrow are aimed at raising investment and spending among both companies and consumers to spur long-term growth. The first two arrows focused on monetary easing and fiscal stimulus.
Despite the gains made, there is still much room for further progress, added Mr Nishimura.
"Investments are not growing as much as we want to see. For example, there are still huge internal reserves in Japanese companies, said to be more than 300 trillion yen. These... reserves have to be utilised or it would not help the 'virtuous cycle' of the economy," he said.
"We are seeing wage increases but we want to see more. We also want to see improvements in the terms and conditions of trade with SMEs (small and medium-sized enterprises). They are suppliers to large companies. The payment terms for SMEs have to improve so that the wages for workers in SMEs will increase and consumption will be stimulated."
Speaking on a panel discussion, Nomura Securities' chief Japan equity strategist, Mr Hisao Matsuura, said the thickening profit margins at Japanese firms made it a good time to invest in Japanese stocks.
He added, however, that given the labour shortage that Japan faces, Japanese firms must do more to invest in automation and infocomm technology to raise productivity over the long term.
A fellow panellist, Aberdeen Asset Management Asia's head of corporate governance, Mr David Smith, lauded Japan's moves to strengthen transparency and risk management at its listed companies.
Abenomics reforms included the enactment of a Corporate Governance Code in June this year, which, among other things, called on firms to hire independent external directors. So far, this has led to 87 per cent of listed firms having such directors, up from 47 per cent in 2013.