TOKYO (Reuters) - Prime Minister Shinzo Abe will pledge to boost incomes by 3 percent annually and allow tax cuts and reduce red tape in special economic zones when he unveils the government's latest polices aimed at revitalizing the world's third-biggest economy, Japanese media said.
An income boost is vital to the success of Abe's ambitious goals to end years of entrenched deflation and decades of economic stagnation.
The Bank of Japan's sweeping monetary expansion campaign announced in April targets achieving 2 percent inflation in less than 2 years, and analysts say wages will need to move higher to put consumer prices and growth on a sustainable upward track.
The popular prime minister, who took office last December after his party's big election win, may also call for the nation's public funds to boost their investment in equities and overseas assets to seek higher returns, sources have said.
Financial market players are keen to see details of Abe's growth strategy, the "Third Arrow" in his "Abenomics" prescription to spur sustainable growth. The first two "arrows" are hyper-easy monetary policy and big government spending.
The Nikkei business daily said Abe, who is set to deliver a speech on the growth strategy from around 12:30 p.m. (11.30 p.m. EDT on Tuesday) on Wednesday, would target annual gains of 3 percent or more in gross national income per capita, increasing incomes by more than 1.5 million yen ($15,000) over 10 years from 3.84 million yen in the year ended March 2013.
Investors have not given up hope that Abe's policies will end the country's prolonged economic stagnation, but a note of caution has crept in since Tokyo share prices began to slide on May 23 after months of heady gains.
The stock price falls are also a worry to Abe's government ahead of a July 21 upper house election that his party needs to win to cement his grip on power.
The benchmark Nikkei stock average had soared to a 5-1/2-year peak after rising 53 percent since the end of 2012, but has since then lost around 15 percent.
The yen traded around 100 yen against the dollar on Wednesday, having fallen to 4-1/2-year low of 103.74 yen late last month.
Some analysts said that it was hard to see how the income gain target could be reached - especially if, as expected, the growth plan includes steps that would make it easier to use temporary workers, who tend to be lower paid.
"It is hard to see how that can be reconciled with income growth," said Sophia University professor Koichi Nakano. "His government is very good at PR strategy ... but it really does look more like a campaign platform rather than anything worthy of the name of economic policies."
DEREGULATION
Abe has already set a string of targets including boosting private investment, but critics question if these goals are achievable.
"The government has come up with rosy numerical targets but I doubt any of these could be met or that such a targeting policy could work out as planned," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "After all, the government cannot control every economic activity just like the central bank cannot control long-term interest rates."
"'Abenomics' should not lean toward a planned economy and market players are attaching greater importance to deregulation, not these numerical targets."
According to media reports, special economic zones in Tokyo and other big cities will be allowed to introduce corporate tax cuts and ease regulations to attract foreign and other businesses.
The government is also expected to allow the sale over the Internet of most over-the-counter drugs as a model case of deregulation.
Abe has said deregulation is the top priority for boosting growth but the package of steps - to be approved by the cabinet on June 14 along with macro-economic guidelines - is unlikely to include bold reforms in areas such as labor mobility and nationwide corporate taxes.
Japan has already vowed to target private-sector investment of 70 trillion yen annually, the level before the 2008 financial crisis and up about 10 percent from current levels.
The government also aims to triple infrastructure exports to 30 trillion yen, double farm exports by 2020 and has set a goal of having 70 percent of exports covered by free trade deals by 2018, compared with around 19 percent now, by pushing participation in the U.S.-led Trans-Pacific Economic Partnership (TPP) and other trade deals.
($1=100 yen)
(Writing by Linda Sieg; Editing by Shri Navaratnam)
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