Rakuten chief attacks Shinzo Abe over reform U-turn

Jonathan Soble and Ben McLannahan
Japanese Prime Minister Shinzo Abe
Getty Images

Shinzo Abe's commitment to reviving the Japanese economy through deregulation came under attack from a close ally as concerns emerged at the Bank of Japan over the fight against deflation, a core element of the prime minister's "Abenomics" agenda.

Hiroshi Mikitani, the internet billionaire who advises the premier as a member of the Industrial Competitiveness Council, threatened to quit in a stinging assessment of the government's handling of drug sales liberalization. "If Mr Abe cannot decide on this, he cannot decide on anything," Mr Mikitani said.

(Read more: The verdict on Abenomics, one year on)

Meanwhile, Bank of Japan board members have voiced concern that incomes are not keeping pace with higher consumer prices. Higher wages are a key component of Mr Abe's plan to end Japan's deflationary cycle and stimulate growth, but he has encountered opposition from business groups.

Mr Mikitani's broadside, delivered at a fiery news conference, exposed deep divisions within Mr Abe's administration over proposals for competitiveness-promoting structural reform. The premier has described such reform as the most crucial element of his campaign to end two decades of economic drift. Yet critics say his ambitions on several other fronts – including labor rules and farmland ownership – have also been delayed or watered down.

CLSA: Assessing Abenomics

Mr Mikitani, chief executive of Rakuten, Japan's largest e-commerce company complained of "stupid, irrational conflicts running through the deregulation debates". He said these problems were exemplified by the drugs bill, which was one of the first reforms promised by Mr Abe after his election late last year.

"It is a deplorable direction we are moving in," Mr Mikitani said. "The proposals they are trying to submit are ridiculous."

(Read more: Japan's Abe calls for cut in corporate tax)

Bricks-and-mortar pharmacies oppose the bill's removal of a ban on internet sales of non-prescription drugs. A draft outlined by the health ministry on Wednesday contained caveats that would prolong their hold over more than two dozen popular medicines, in some cases permanently.

Mr Mikitani has an obvious commercial interest in seeing the internet ban lifted: over-the-counter medicine is a Y700 billion business in Japan and is growing quickly. As a dominant online retailer Rakuten would be one of the main beneficiaries.

Indeed, many saw the idea's prominence in Mr Abe's deregulation agenda as evidence of Mr Mikitani's influence. As one of nine senior executives handpicked by the prime minister to sit on the Industrial Competitiveness Council, he advises on legislation to boost Japan's growth.

More from the Financial Times:

BoJ warns of wages lagging higher prices
Abenomics fuels Toyota profit upgrade
Abenomics hits children's lunchtime drink

Even so, his position has won support from the public and the courts. In January, the supreme court ruled that the internet ban exceeded the scope of existing pharmaceutical laws, though it stopped short of striking down all restrictions on online sales.

Mr Mikitani said he would quit the competitiveness council and join a legal challenge to the proposed new regulations if they are adopted. "I cannot sue the government and be part of it at the same time," he said. He urged Mr Abe to amend the draft bill and commit to a full deregulation.

The BoJ's anxiety over wages emerged in the minutes of the central bank's October 3-4 meeting. Policy board members agreed it was important that improvements in income should support consumption, which was the main driver of Japan's strong growth in the first half of 2013.

(Read more: Will Japan's elderly get burned by 'Abenomics'?)

One unnamed member said it was now difficult to expect a marked pick-up in incomes until April 2014, when labor unions and management groups set base pay policies for the coming fiscal year.