Prime Minister Shinzo Abe on Wednesday rolled out the next phase of his aggressive strategy to kick-start Japan’s economy, with plans to encourage foreign investment, nurture innovation and improve regulation. But almost immediately, a big question surfaced: Will they go far enough?

Since taking office in December, Mr. Abe has promised to fight deflation and spur growth through a combination of aggressive monetary easing, public works spending and economic overhauls. The initial efforts of his program showed promise, helping to drive the stock market up 80 percent from late last year.

But enthusiasm has waned in the last two weeks, as investors wondered whether the efforts were sustainable. The latest proposal did little to quell the concerns. The Nikkei 225-share index ended the day down 3.8 percent, another rout in an extended correction for the market.

In the next wave of so-called Abenomics, the prime minister laid out a wide range of policies aimed largely at the corporate sector. He plans to introduce tax breaks to increase foreign direct investment. He also said he would remove cumbersome regulations, for example in the medical industry, by removing a ban on sales of nonprescription drugs on the Internet. And he pledged to combine Japan’s high-grade infrastructure and manufacturing prowess with the daring and creativity of a younger generation.

“For 20 long years of deflation, Japan suffered a deep loss of confidence,” Mr. Abe said. “It is now time for Japan to become an engine of global economic growth.” But some of the fundamental overhauls needed for an economic renewal, like bolder labor market changes, were conspicuously missing from Mr. Abe’s policy plans, as were vital details, said Akio Makabe, a professor in economics at Shinshu University in Central Japan. For one, the plan did not go far enough in breaking down the distinctions between regular and nonregular work forces that has created a rigid and inefficient two-tier labor force.

“At the start, there was hope that Mr. Abe was as committed to economic reforms as he has been with monetary policy and government spending,” Professor Makabe said. “But judging from this policy platform, that commitment appears to be wavering. Where is the labor market reform? Where is the real change? It seems he’s given in to the naysayers and listed up policies that just sound good.”

If Mr. Abe fails to deliver on his promises for bold change, the euphoria that drove Tokyo shares to a five-year high could evaporate further, economists warn. And without those fundamental overhauls, they say, Japan is at risk of sinking back into the economic torpor that has defined much of the last two decades.

Mr. Abe also hopes to maintain momentum to the parliamentary elections this summer, his first major test at the ballot box for his economic policies. With ratings high and political opponents weak and divided, his Liberal Democratic Party is likely to make a strong showing.

Many economists and younger business leaders say the crux of the overhauls lies in raising Japan’s economic metabolism by making it easier for companies to enter the market and for fading old ones — of which there are many in Japan — to exit. That would need to be paired with a more flexible labor market to smooth the transfer of workers from ailing companies to promising new ones.

Hope may lie in companies like Pijin, a start-up based in Osaka with roots in a student venture that developed multilingual, “smart” Internet search technology. In March, Pijin released its first product: an online service that links quick response codes — checkered symbols that can be scanned with a smartphone — to cloud technology that provides translation into different languages.

“Everything about the Japanese economy tends to be skewed in favor of large, established companies and toward Tokyo, and that needs to change,” said Kenji Takaoka, the chief executive of Pijin.

Article source: http://www.nytimes.com/2013/06/06/business/global/abe-describes-strategy-to-free-up-japans-economy.html?partner=rss&emc=rss