Japan: all eyes on the next Prime Minister
Insights

Japan: all eyes on the next Prime Minister

  • Post-Abe economic policies likely to remain broadly unchanged
  • Structural reforms irreversible
  • Near-term volatility presents buying opportunities for long term investors to purchase quality companies

Following an eight-year term, Shinzo Abe announced he will stand down as Prime Minister of Japan due to a deterioration in his physical health. Japan’s Topix Index dropped around 2.5% in reaction to the news on 28 August 2020, before rebounding to close the day marginally negative. In the short-term we can expect downward pressure on the domestic equity market, while the yen appreciation as a result of political uncertainty will act as positive for non-JPY based investors. In the event of a broad-based sell-off in Japan’s equity market, we believe this will present a buying opportunity for long-term investors like us to purchase quality businesses at an attractive price.

The ruling Liberal Democratic Party (LDP) brought stability to Japanese politics throughout most of the previous decade with Mr Abe becoming the longest-serving Prime Minister in the nation’s history. Over the ruling term, the government have implemented a series of corporate governance and labour reforms – irreversible structural legislation – that will be transformational for corporate Japan in the next decade.

It’s important to highlight that this election is not a change of the ruling political party. Turning our focus to potential successors, the former Minister of Foreign Affairs – Fumio Kishida – is a popular candidate. Mr Kishida holds a more traditional approach to politics compared to Abe. His approach would focus on the re-empowerment of the Ministry of Finance (MoF), which may result in a tilt toward fiscal austerity. The current Chief Cabinet Secretary Yoshihide Suga would be welcomed by the market – ensuring a smooth transition with the expected continuation of “Abenomics”.

Market response to successors

His popularity was boosted by his announcement of a new era in the Japanese calendar – Reiwa – something to keep in mind for the LPD in the next lower house election. The government may also look to appoint the current Finance Minister and Deputy PM Taro Aso – who leads the second largest LDP faction and is a former PM. In all three of these scenarios, we can expect limited change to government policy.

On the other hand, the election of Shigeru Ishiba would prove a less favourable market outcome given uncertainty surrounding his focus on economic policy reform. Mr Ishiba has held a number of positions in parliament, notably being the Minister of Defence, and Minister of Agriculture, Forestry & Fisheries, whilst also being popular political figure among the Japanese population.

More broadly, the team don’t envisage any major change in monetary policy given the Bank of Japan’s (BoJ) Governor is expected to stay in his seat. We also expect the central bank to support any downturn in the market through increased ETF purchase. Since Japan’s relations with the current U.S. administration remain sound, any geo-political events should be avoided.

The team will continue to closely monitor any political developments alluding to Mr Abe’s successor. However, as bottom-up stock pickers we will continue to identify opportunities at a company level – sticking to our disciplined investment process and exploiting any near-term volatility that presents buying opportunities to purchase quality companies.

20 September 2020
Daisuke Nomoto
Daisuke Nomoto
Global Head of Japanese Equities
Share article
Share on linkedin
Share on email
Key topics
Related topics
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Key topics
Related topics

PDF

Japan: all eyes on the next Prime Minister

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

22 March 2024

Harry Waight

Portfolio Manager

Simon Haines

Portfolio Manager

Japan: we’re more convinced than ever

Investors are increasingly turning their attention to Japan. We spent two weeks there and met dozens of companies. But which businesses look best placed?
Watch time - 6 min
20 March 2024

Krishan Selva

Client Portfolio Manager

Lin Jing Leong

Senior Sovereign Analyst, Emerging Market Asia

China: bottom-up opportunity as the macro picture slowly improves

While the top-down story has challenges, the notion that China is ‘uninvestable’ is in our view misinformed. We believe company-specific opportunities can be found by looking at trade, value for money and capital return.
Read time - 5 min
5 March 2024

Francis Ellison

Client Portfolio Manager

European smaller companies

Inflation is falling, interest rates are peaking, and corporate earnings are growing – making small cap valuations attractive.
Read time - 2 min
26 March 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – March 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
26 March 2024

Ebele Conroy

Investment Analyst, Global Research

Joe Horrocks-Taylor

Senior Associate, Analyst, Responsible Investment

Green machines: the future of transport

The transportation sector has a significant impact on global emissions, but technology innovations, policy changes and shifting behaviours can reduce this. How are the different modes progressing?
Read time - 5 min
26 March 2024

Claire Robbs

Investment Grade Credit Research, Fixed Income

Chocks away! Airport passenger numbers – and financial metrics – recover

Increased numbers of fliers and supportive concession frameworks mean the industry retains a strong and steady credit trajectory.
Read time - 3 min
true
true

Important information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Our Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.