Abenomics arrows pointing in same direction

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Abe has dissolved parliament and called snap elections he is certain to win (LDP support 39% vs closest rival DPJ at 9.7%). He has delayed the sales tax hike 18 months and will table further fiscal stimulus. This is positive for growth and supports the overweight position in Japanese equities we added to on weakness yesterday.

We have consistently argued this year’s sales tax hike was a mistake. We see its delay as good news for the economy and good news for the stock market over the medium term.

As investors we always thought Abenomics was at its most compelling in its early days when the Three Arrows pointed in the same direction. We are back at that stage now. Monetary policy has stepped up a gear with a more aggressive phase of quantitative easing. Fiscal policy will be focused once more on boosting growth rather than tightening purse strings prematurely. A reset political mandate will give structural reform more time to take effect.

Fears of fiscal abandon may be allayed by Abe’s continued commitment to get to fiscal surplus in 2020. He also pledged not to delay the sales tax hike a second time and this does make his government a hostage to fortune if the world (and domestic) economy isn’t playing ball at that time.

We are overweight Japanese equities in our multi asset funds. The market can be volatile but new asset allocation targets mean government pension funds will be buying equities as opportunities arise and this should limit downside. Currency weakness is part of the story so we favour hedged exposure and we are outright short the yen where this is possible.


Trevor Greetham is director of Asset Allocation at Fidelity Worldwide Investment


Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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