Japan’s Prime Minister Shinzo Abe is likely to storm to another victory in the Japanese general election on Dec. 14. According to polls out Thursday and Friday, Abe is set to take about 300 of the 475 seats in Japan’s Diet, the name for the lower house of the parliament.
That would be more than the 294 seats he won in 2012, and would give his party and its coalition partners the super-majority it needs to override the upper house of parliament.
Morgan Stanley’s Robert Alan Feldman said in a note dated Nov. 21 that a “solid victory” for Abe could send TOPIX, a major index of Japanese stocks, up 28% by fall 2015.
Feldman raised his estimated probability of a same-sized or larger coalition for Abe to 60%, from a previous estimate of 25%. He’s revised the chance of a major loss for the coalition down to 10%, from 20% before.
Abe called the election in November after shockingly bad GDP figures. Japan brought in a sales tax hike in April, raising the level from 5% to 8%, which had a much bigger impact than economists had expected. Abe ran on a platform of pushing back the second part of the sales tax hike, scheduled for October, for at least 18 months.
That less hawkish stance on Japan’s government deficit is paired with the Bank of Japan’s massive QE programme, both with the intention of boosting the economy and raising inflation to 2%.
This is all pretty good news for other reforms too, according to Feldman. He says the polling “implies a much higher probability of accelerated reform, post-election… Such an outcome would increase the likelihood of Japan exiting deflation permanently.” He explains:
Abenomics so far has done very well in corporate governance reform, but also has done well in agricultural reform, government reform, and education reform. However, some key areas have lagged. In particular, reforms in the labour market, tax structure, and immigration will be crucial. Once the dust settles after the election, the progress in these lagging areas will be an intense focus of investor interest.
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