Abe to shoot third arrow, again

Japanese Prime Minister, Shinzo Abe, is set to formally unveil details of the third stage in his Abenomics package.

The Tokyo Tower stands amid buildings at dusk in Tokyo, Japan
Source: Bloomberg

So far the first two ‘arrows’ of his economic reforms have largely been on target, providing a massive boost in monetary stimulus to weaken the yen and ramping up spending on public works.

The third arrow will have a tougher target, which is to tweak the way Japanese businesses have been run through a slew of reforms in order to raise growth.

Some of the 230 ideas being mulled over include encouraging more female participation in the workforce, opening up the highly protected farming sector to allow private companies to double their stakes from the current limit of 25%.

Corporate tax is also expected to be cut from the current rate of over 35% to below 30%. This will make it line with the 29% average among countries under the Organization for Economic Cooperation and Development (OECD) umbrella.

So far, the catch is that there has been quite a bit of vagueness over details such as exact rates and steps. There’s some expectation that we could see a bunch of proposals and recommendations, which will be farmed out to the various ministries and agencies to be fleshed out.

While that will be a move in the right step, it could mean progress might be at a slower pace than what the market is hoping for. This will be Abe’s second attempt at the third arrow, after his first try last year was criticised for being too vague.

The Nikkei has had a good run this month, hitting its highest level in nearly half a year at 15369.28 yesterday on the back of better-than-expected Flash PMI data for June at 51.1, versus market forecasts of 50.1 and 49.9 in the prior month.

If details on Abe’s third arrow do turn out to be a little underwhelming, we could see a ‘sell the fact’ market reaction.

Ahead of the Singapore Open

Overnight we saw Wall Street largely flat despite a better reading from the manufacturing PMI. On the flipside in Europe, we saw a round of disappointing manufacturing and services PMIs weighing on investor sentiment.

Entering into the Asian trading sessions, we could see some limited uplift on news that Iraq’s army regained some ground against militants, which has helped pull back oil prices.

We are calling for the MSCI Singapore to open lower, -0.30 points at 370.20.

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