Japan
Regime change? What Japan’s new prime minister might mean for the stock market
3 min read 4 Oct 24
Shigeru Ishiba has become Japan’s new prime minister, following his surprise victory in the ruling Liberal Democratic Party’s leadership contest. The initial market reaction has been negative but should investors worry? Carl Vine, Co-Head of Asia Pacific Equities, assesses what Ishiba’s election might mean for the Japanese stock market and, importantly, corporate reform.
Last week’s LDP leadership result ushered in Japan’s fourth prime minister this decade. The market responded with angst. Given Ishiba’s rhetoric, this is arguably understandable. A fiscal conservative who is openly anti-Abe*, he is talking about higher corporate taxes and the need for higher interest rates.
Setting aside the obvious point that the Bank of Japan is independent from the PM, the rates part doesn’t bother us too much. It won’t help settle jitters around the yen, but higher rates are a long-running kabuki show that really needs to move to the next act, in our humble view. We are all for it.
"The question going forward is how much of Ishiba’s electoral bluster translates into reality"
Higher taxes are a little more bothersome. The question going forward is how much of Ishiba’s electoral bluster translates into reality now that he is in the seat.
We sense no need to panic. Let’s not forget that Ishiba’s predecessor Fumio Kishida’s campaign narrative also contained a few worrying comments on ‘labour vs. capital’ in the run-up to his election in October 2021.
Once in office, however, this populist rhetoric was clarified into a very pro-market stance where the higher rewards to labour he promised needed to be paid for, not from capital, but productivity. Let’s see what transpires with Ishiba.
On the corporate tax front, let’s see how far this goes. It’s very far from a done deal. Hot money in the Japanese stock market has consistently overestimated the power of the prime ministership in Japan.
Regime change?
Ishiba’s anti-Abe rhetoric perhaps goes back to their shared time in the cabinet and management style, rather than in underlying anti-market beliefs. As we have said in the past, one of former Prime Minister Shinzo Abe’s greatest gifts to Japan was the way that he successfully de-politicised corporate reform.
Maybe we are incorrect, but we are not currently of the view that Ishiba is the harbinger of a negative regime change.
*Former Prime Minister Shinzo Abe introduced a set of aggressive monetary and fiscal policies and structural reforms, known as Abenomics, a decade ago to stimulate the Japanese economy.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.
