Structural reforms to reshape Japan’s political economy
Japan’s legislature, the Diet, will work toward the passage of comprehensive reforms in the coming months. There are currently three major bills under consideration in Japan’s Diet.
1. Labor reforms
This bill was passed by the lower house of the Diet on June 19, and it awaits the upper house’s approval. The bill aims to reduce the current restrictions on Japanese companies when it comes to hiring temporary and contract-based workers. The reform would further reduce the role of “regular” workers. Traditionally, these regular, full-time workers have been entitled to extensive benefits and have been comparatively difficult to fire because of the lifelong employment legislation in Japan.
Reform should help reduce employee costs and augment labor productivity for companies operating in Japan (EWJ)(DXJ). Companies would be able to choose, after three years, whether they would like to convert temporary positions to full-time or to maintain the position as temporary. Companies such as Sony (SNE), Canon (CAJ), Toyota Motors (TM), and Honda Motors (HMC) should stand to benefit.
2. Power sector reforms in Japan
The bill, approved by both houses of the Diet on June 16, aims to break the monopoly in Japan’s power sector. The bill’s goal is to enable the creation of independent transmission and distribution companies. Traditionally, both generation and transmission functions have been controlled by the nine regional companies and wholesaler Electric Power Development Corp. The bill would pave the way for enhancing competitiveness, and therefore efficiency, in the sector.
But how Abe’s government intends to protect residential electricity from falling prey to price cartels still remains to be seen. Meanwhile, companies are already lining up to invest in Japan’s reformed power sector, with Panasonic and Nissan leading the queue.
3. Agricultural sector reforms
The third major bill relates to agricultural sector issues that Japan needs to address. Learn more in the next part of this series.