22nd July 2013
With Shinzo Abe’s victory in the elections for the upper house a stable and longer-lasting administration has been established and this should should allow the Prime Minister to focus on implementing his growth strategies says Shogo Maeda, Schroders head of Japanese Equities.
Maeda says he believes Abe will concentrate on measures which can be implemented and achieve results quickly.
He says: “Results from Sunday’s upper house elections in Japan appear to be a vindication of Prime Minister Shinzo Abe’s economic policies. With Mr Abe’s Liberal Democratic Party (LDP) taking 65 of the 121 upper house seats, his coalition government now has a comfortable majority in both houses of the Diet – a first for a Japanese Prime Minister in six years. The previous deadlock in parliament has been viewed as a key reason for the country’s merry-go-round of prime ministers, with the post changing hands six times in as many years.
“So, what does this new majority mean for the economy? Firstly, this should allow Mr Abe to focus on implementing his growth strategies, which also means he looks set to be more outspoken in pursuing pro-business policies. More importantly, a stable and longer-lasting administration has been established and this should enable more coherent economic policies to be carried out. Finally, Mr Abe is likely to be patient in pushing forward an issue close to his heart – that of revising the Japanese constitution,” says Maeda.
“And what about investors? One of the near term issues the market is watching closely is whether the government will implement its planned hike in consumption tax – from the current 5% to 8% – in April 2014. We believe this has already been, to a large extent, discounted.
“Another test of Mr Abe’s determination to drive through reform will come through negotiations to join the 11-nation Trans-Pacific Partnership (TPP), a proposed free trade zone. With regards to his growth strategy at home, we believe he will prioritise speed and practicality, focusing on measures that can be realised quickly. As for the most difficult structural reforms, these will have to wait as they may not necessarily deliver substantial gains considering the intense political bargaining required.”