At the weekend Japanese prime minister Shinzo Abe won control of the country’s upper house.
Nikko AM, one of the biggest asset managers in Asia, sent through some comments from their head of strategy about what it means for markets.
Basically, Nikko’s chief global strategist John Vail says it will allow a program of “Super-Abenomics” to be put into place:
Many global investors have been sceptical of late about the structural reforms in Japan and the ability of Abenomics to achieve its aims, but at Nikko AM we are not.
In fact, our belief is that these reforms will be even stronger than promised before the election, and undertaken with alacrity, in what we call ‘Super-Abenomics.
In our view, Abe’s victory in the upper house is bullish for Japanese equities and the Japanese economy as a whole, as the removal of political headwinds bolsters the government’s ability to press forward with all ‘three arrows’ of its growth strategy.
The election result should help drive consumer consumption and thus build wealth in Japan, while the confidence created in government stability may also help corporate capex and housing investment.
Other major reforms following the election, which I expect will surprise the consensus, include allowing a gambling industry in Japan, approving large scale resorts, and accelerating the restart of nuclear power plants.
These are controversial issues but will have a positive effect on the economy and, significantly, they mark a huge change in Japan’s willingness to change for growth,” Mr Vail said.
He added that what is being done now in Japan hasn’t been attempted for decades; however, within Japan there is growing belief that this time it will work.
It’s understandable for there to be some scepticism from investors, but this time is different and investors need to open their eyes to this.
For instance, the five-year term of an activist Bank of Japan (BOJ) governor, after fifteen years of conservative “BOJ men”, is not a short term change, and the significance of the stability of the prime minister, after a decade of revolving chairs and instability, cannot be underestimated.
The mere fact that Japan is without crisis of some kind is a major change, but in reality this is just a return to prosperous conditions.
While the consensus forecast for GDP in Japan for this calendar year is 1.8 per cent, we expect 2 per cent or higher, with more consistent continuing after that.
Our view is that global investors should be seriously considering Japanese equities, or they may well miss out on major opportunities.
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