Japan's economic recovery is prompting a "reform fatigue" that threatens to slow essential structural reforms, Kaoru Yosano, the minister of state for economic and fiscal policy, warned yesterday.
Mr Yosano said he was concerned that as Japan emerged from a prolonged period of weakness "a reaction against reform is occurring".
"I am optimistic about the prospects of the Japanese economy," the minister said. "The Japanese economy is breaking out of the emergency that followed deflation. It is moving toward normality." But he added: "As the economy expands, the people are showing signs of reform fatigue. Reform appears to be losing momentum on an individual level."
Mr Yosano's comments come amid concerns that the successor to Junichiro Koizumi, the prime minister whose term ends in September, might fail to pursue further economic reforms.
"I feel uneasy about the course of the post-Koizumi government. Simply parroting Prime Minister Koizumi's calls for reforms …will not get us anywhere," he said. There are some who believed that "a 'breathing space' from structural reform is required after the Koizumi administration".
Mr Koizumi had faced criticism that his reforms have led to income inequality, Mr Yosano noted. But given the decline in Japan's working population, structural reforms to maintain Japan's international competitiveness were "needed very badly".
Income inequality, "cannot be an excuse for slowing the pace of structural reform", he said. "What determines the speed of structural reform is competition with the rest of the world. To slow this down for domestic reasons would be to fall behind in the world."
Mr Yosano singled out improved productivity in the service sector as a vital area for reform. "The productivity of the service industry is very low. That is to say there is room for improvement, for higher productivity," he said.
Earlier this month the Bank of Japan ended its zero-interest rate policy, a move that has also prompted concerns that economic growth could be jeopardised if the bank moved too quickly to tighten credit.
Tetsufumi Yamakawa, chief economist at Goldman Sachs in Tokyo, has noted that the two potential pitfalls for the Japanese economy were excessive tightening by the BoJ and a slowdown in structural reform.
"There are strong-rooted concerns in the market about a potential weakening of momentum in structural reform under the next administration," he wrote.
Yesterday Sadakazu Tanigaki, Japan's finance minister, a fiscal reform hawk, became the first to declare officially his candidacy for the post of Liberal Democratic party president.
But Shinzo Abe, chief cabinet secretary, is favourite to win the post and there are doubts about whether he will fight to push through measures that are unpopular among those in the party opposed to reform.
