Results from Sunday’s upper house elections in Japan appear to be a vindication of Prime Minister Shinzo Abe’s economic policies…..
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Shogo Maeda, Head of Japanese Equities
For professional investors and advisers only.This document is not suitable for retail
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.
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.
Disclamer
The views and opinions contained herein are those of the Azad Zangana, European Economist and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
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Source: ETFWorld – Schroders
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