Japan's fiscal consolidation plan and reform agenda are positive; concrete targets are needed

Reforms are also important to driving further growth. The cabinet office released an update of the third arrow of Abenomics; i.e., reforms, early this week. Its last update was in June 2014. 

The latest draft calls for a "productivity revolution" among small companies and enhanced investment in technology and human resources. 

The government aims to increase services-sector productivity growth to 2% by 2020 from 0.8% in 2013, riding the wave of the 2020 Tokyo Olympics. It also targets doubling the number of foreign IT workers to 60,000 by 2020. The government expects these measures to help lift economic growth, with the aim of reducing the fiscal deficit. 

Fiscal consolidation is also part of the latest draft. The government reaffirms its target of a primary balance by FY20 (ends in March 2021). It also targets a primary budget deficit of 1% of GDP by FY18, versus a projected deficit of 3.3% of GDP for FY15. 

The next three fiscal years are considered a period of intensive fiscal reform, according to the draft. The government plans to cap the total increase in social security spending for the next three fiscal years at JPY 1.5tn, the same as the past three years. 

"We think the latest draft reforms are a step in the right direction, but in the absence of concrete, near-term targets their impact may fall well short of expectations", said Standard Chartered in a report on Thursday