The decision by Shinzo Abe to call an election in Japan for this weekend, more than a year ahead of the official deadline, was likely prompted by a number of factors.
A recent recovery in his approval ratings, which, at least in part, can be attributed to Kim Jong Un, will have been an important one. Abe, keen to revise Japan’s pacifist constitution, is widely seen as a leader willing to stand up for Japan against the unpredictable North Korean regime and he likely assumed that the Japanese people would not want a new and inexperienced leader at such a volatile time.
However, the more important considerations may be found much closer to home. Japan’s economy is in a run of six consecutive quarters of GDP growth, the best run for more than a decade. Inflation is positive and has been rising. Wages have been rising too and while growth has been modest so far the unemployment rate is just 2.8% so the outlook is favourable, particularly at a time when corporate Japan is delivering robust profits. In short, the current economic backdrop for Japan is about as favourable for an incumbent government as it is likely to get and that is why we would expect Abe’s LDP to remain in power, something various recent polls have predicted.
If this is the case, then for the economy we would expect more of the same. The government will likely continue with reform and a pro-growth agenda, with some doubt still surrounding the proposed consumption tax increase in 2019. An Abe victory should also see the Bank of Japan maintain its easing bias, whether current governor Haruhiko Kuroda is re-appointed next year or not. Japan’s economy, its currency and its equity market will always be sensitive to global economic and political conditions and clearly that involves a number of uncertainties, but domestically an Abe victory should be a welcome dose of economic and political stability.
Andy Tidby is Japanese equities fund manager at Invesco Perpetual