Rakuten CEO slams Abenomics failings as he quits Japan panel; “The third arrow is so weak it is hard to find anyone who thinks it is much of a strategy”

Rakuten CEO slams Abenomics failings as quits Japan panel

Wed, Nov 6 2013

By Nathan Layne

TOKYO (Reuters) – A prominent Japanese entrepreneur is quitting a key panel advising Prime Minister Shinzo Abe, saying the government is stifling the economic reforms it has promised. Hiroshi Mikitani, chief executive of e-commerce firm Rakuten Inc (4755.T: Quote, Profile, Research, Stock Buzz), said on Wednesday he was girding for a legal fight with Abe’s government over the regulation of online drug sales, an area his company sees as a lucrative business opportunity.His move, a dramatic step in a country where consensus is prized, is part of a spat over a corner of Japan’s drug sector, reflecting Mizutani’s business interests.

But it also represents an indictment of “Abenomics,” given that Mikitani’s decision to join the blue-ribbon panel had been heralded as a vote of confidence in Abe’s vows to reform Japan’s highly regulated economy.

It comes as some investors question whether the premier – after early success in reviving the world’s third-biggest economy through massive monetary and fiscal stimulus measures – would deploy his “third arrow” to deregulate the economy, seen by some as key to boosting its potential for sustainable vitality.

“Abe’s growth strategy was about bringing down regulatory barriers and cultivating new businesses and services. It’s disheartening to see that now going in the opposite direction,” Mikitani told a news conference. “Rather than disappointed, I’d say I’m fed up.”

Investor expectations for Abe’s reforms have receded in recent months, contributing to a sluggish performance by Tokyo shares. The Nikkei stock average .N225, which rocketed 84 percent in half a year on initial hopes for Abenomics, is down about 10 percent since hitting a six-year high in late May.

“The third arrow is so weak it is hard to find anyone who thinks it is much of a strategy,” said analyst Tobias Harris at Teneo Intelligence, a political risk consultancy for investors. “Everyone is disappointed. No one seems impressed.”

SAFETY CONCERNS

Abe’s government is moving to allow over-the-counter drugs to be sold online, but the health minister said on Wednesday that some restrictions would remain due to safety concerns. Mikitani had pushed for full deregulation of the market.

Mikitani said he will quit Abe’s Industrial Competitiveness Council if – as now seems almost certain – the health ministry’s plan goes ahead. He would then focus on supporting a lawsuit against the government to be filed by an affiliate involved in online drug sales.

The 48-year-old executive said he believed the health ministry moved quickly to re-regulate online sales of non-prescription drugs in order to set a precedent and stall any momentum toward opening the much larger market for prescription medications, estimated to be worth some 9 trillion yen a year.

While the medications subject to a ban under the health ministry’s plan represent less than 1 percent of the non-prescription drugs available, Mikitani said he would fight on principle, noting that removing barriers to internet sales had been billed as a centerpiece of Abe’s deregulation drive.

At the heart of the debate are 23 medications that have just come on the market, including blockbusters such as painkiller Loxonin S and allergy drug Allegra FX. The health ministry also wants to ban online sales of another five powerful drugs.

Mikitani said there was no evidence to back up any belief that such drugs would be more safely administered in person. He further argued that sales over the Internet could in fact be considered safer, because of the ability to track customers and communicate with them via e-mail.

Non-prescription drugs have been available online in Japan since January after the Supreme Court ruled that restricting that sales channel was illegal. That case, brought by Rakuten affiliate Kenko.com Inc. (3325.T:Quote, Profile, Research, Stock Buzz), had triggered the health ministry’s review of which drugs that should be regulated.

If the health ministry’s plan becomes law, Kenko.com was planning to sue the government to reestablish its right to sell the drugs online, Genri Goto, CEO of the company, which is owned 40 percent by Rakuten, told the briefing.