Japan's 'Abenomics' Will Fail: Ex-Olympus CEO
Japan's multi-pronged attempts to stave off prolonged stagnation in the country will ultimately fail, the former chief executive of camera and medical equipment maker Olympus told CNBC on Monday.
Michael Woodford, who was fired by the company in October 2011 after he highlighted apparent irregular payments made by the firm, said that important structural reforms – which are desperately needed in the country - will prove elusive.
"That's the bit that, knowing Japan, is going to be the most problematic for them. They need to switch on their nuclear power stations, they need to have social reform of legislation," he said.
Since his tenure began in December, Japan's Prime Minister Shinzo Abe has unveiled a detailed plan which aims to lift the country out of its economic rut. Gross domestic product (GDP) growth has barely breached 2 percent over the last decade, deflation has plagued the country for 15 years and its debt-to-GDP ratio currently stands at 175 percent.
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The Bank of Japan, in accordance with Abe's wishes, has promised to pump liquidity into the economy at a pace even faster than the U.S. Federal Reserve. Changes to fiscal policy have also been announced, as well as the so-called "third arrow" of structural reforms.
But according to Woodford the government will have the biggest problem combating "zombie companies" - firms which are only generating enough cash to service their debt.
Companies with little profit-making capabilities are believed to be a bigger problem in Japan than other advanced nations, and Woodford said that regulation clamping down on investor takeovers was stopping these companies from turning around their fortunes.
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"To do that they need to take out the poison pill legislation," he said, referring to the strategy used by corporations to discourage hostile takeovers.
"Hostile takeovers in Japan are almost unknown and when there have been attempts, it's failed. Capitalism works if you address the weak. So will 'Abenomics' change the culture of corporate Japan? I don't think so."
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Japan's Nikkei 225 Index has reacted with volatility to the extra liquidity pumped into the economy. After an unprecedented bull run that saw the index rise 46 percent between January and May, stocks have experienced a number of sharp one-day falls of around 6 percent.
The Nikkei has fallen 11 percent since May 22 amid growth fears in China and concerns about the scaling back of stimulus in the U.S.
"The U.S. is investing $85 billion a month in QE (quantitative easing), Japan $70 billion - but its economy is a third of the size of the U.S.," Woodford said. "So pumping huge amounts of liquidity into the market has changed the trend, but we've seen what has happened in the U.S. - it's got to be paid back. All those JGBs (Japanese Government Bonds) are sitting on the Bank of Japan."
"Any government, if it was so easy, could go the QE route. And it may have some value," he said, but added: "How you withdraw that in Japan I do not know."
Woodford, who settled his claim for unfair dismissal in June, has published a book about his time as CEO of Olympus, "Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower."
—By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.