Positive market outlook regardless of prime minister Abe’s resignation

We do not expect prime minister Shinzō Abe’s resignation to have any material impact on the Japanese Government’s policies in the short term. The Liberal Democratic Party’s (LDP) positioning and policies will likely remain in place and unchanged until the next general election, planned to be officially held in September 2021. A snap election before September 2021 is possible; however we believe the next PM, the LDP and Komei’s coalition government will refrain, choosing to focus their efforts on addressing issues related to COVID-19 and a weak economy.

Commentaire Mensuel
1 Sep 2020

We do not expect prime minister Shinzō Abe’s resignation to have any material impact on the Japanese Government’s policies in the short term. The Liberal Democratic Party’s (LDP) positioning and policies will likely remain in place and unchanged until the next general election, planned to be officially held in September 2021. A snap election before September 2021 is possible; however we believe the next PM, the LDP and Komei’s coalition government will refrain, choosing to focus their efforts on addressing issues related to COVID-19 and a weak economy.

The Secretary General of the LDP Nikai has stated that it is the party’s intention to hold a simplified version of the LDP Presidential election, only allowing party Diet members and representatives to vote. The winner of the LDP Presidency will have the right to become Japan’s next Prime Minister (PM).

It is unclear at this time who is the favourite to become the LDP President; however Kishida, Suga, and Ishiba are all potential candidates, as is current Vice PM Asō. Following the LDP Presidential election, focus will then turn to the General Election and how the next cabinet will control the Japanese economy, especially from a monetary and fiscal policy perspective.

Having said that, we believe that there needs to be additional and prompt action regarding the COVID-19 response, meaning that the next cabinet cannot stop the current series of supplemental economic relief measures.

Our base case for the Japanese market for Q4 and 2021 remains positive. Although it is important to keep an eye on how the market will respond to the new regime after Prime Minister Abe’s resignation, we expect his successor to maintain many of his market-friendly policies however.

We believe that COVID-19 has accelerated many of the tech-related trends we had long anticipated, with many software companies and electronic equipment, instrument and components manufacturers as clear beneficiaries. We also believe that an expansion and renewal of infrastructure related projects will continue to be a significant investment theme going forward.

Please see our latest market commentary “Signalling the start of the recovery” for further insight regarding our assessment of the current market environment in Japan.

UPDATE – 15/09/2020: Mitsuhiro Yuasa provides his views on the election of Japan’s new prime minister Yoshihide Suga, following the resignation of Shinzo Abe.

The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 01/09/20 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.

Image source: Official Website of the Prime Minister of Japan and His Cabinet – https://japan.kantei.go.jp/98_abe/meibo/daijin/abe_e.html