Japanese Stocks Surge On LDP’s Blowout Victory: Wall Street Reacts

After more than a week of weakness, Japanese markets finally rallied and the yen slumped after Prime Minister Kishida’s LDP retained its outright majority in a lower-house election securing an election victory, and avoiding the worst-case scenarios that opinion polls had suggested beforehand, bolstering market expectations for an economic stimulus.

Kishida vowed to act fast on his economic program, saying he would seek to pass an extra budget as soon as possible and make clean energy investment a priority. Kishida’s ruling Liberal Democratic Party won 261 out of 465 seats in the lower house of parliament, in a surprisingly robust election win.  The benchmark Topix advanced 2.2% on Monday after capping its first monthly loss since July, while the Nikkei 225 Stock Average added 2.6%.  Here is what analysts and investors are saying: 

Japanese Prime Minister Fumio Kishida and the ruling coalition Barings (James Leung)

• “There is a good chance that the new administration may tend to maintain (former Prime Minister Shinzo) Abe’s highly accommodative monetary and expansionary fiscal policies”

• Despite his call for “new capitalism”, which is more focused on income re-distribution, a favorable fiscal package is expected; this includes subsidies for small-to-medium companies to support Japan’s mid-to-long term development

• “We are seeing Japan as an attractive place to invest over a 12-month horizon, both on a standalone market basis as well as from an asset allocation perspective”

Comgest Asset Management (Richard Kaye)

• “I think it’ll be positive because we’ve got a confirmation of continuity, there will be no ugly surprises in policy but at the same time there’s a stimulus to the government to change in a good way”

• “First and foremost we’ll have stability, and for the short term investor in Japanese stocks that’s great news. There’s going to be no uncertainty, no major changes in policy”

• Plus, “what we’ll see in coming weeks and months, is a greater weight attached to opinion of those younger, more forward thinking people inside the LDP, and that’s a great thing. It’s a great thing for investors who’re hoping for Japan’s potential to be released”

Sumitomo Mitsui DS Asset Management (Masahiro Ichikawa)

• The fact that the LDP won a majority by itself means the Kishida administration was able to win confidence from the public and consolidate its foundation for office

• The market’s focus from here will shift to economic policies and details of Kishida’s plans for new capitalism; the market consensus is for a stimulus of about 30 trillion yen ($263 billion)

• Kishida isn’t likely to put forward any policies that won’t be popular with the public or market participants ahead of next year’s upper house election

Morgan Stanley MUFG (Robert Alan Feldman) 

• “We see the election outcome as a neutral to slight positive for the market in the near-term”

• “Focus will now turn to policy implementation – both in terms of formal objectives on stimulus and reopening, as well as the governance implications of the corporate sector’s interpretation” of Kishida’s calls for a “new capitalism”

• “We retain our above-consensus GDP growth forecast for 2022 and expect a fiscal stimulus package to be finalised in November”

JP Morgan Securities (Ryota Sakagami) 

• The results are “positive” for Japanese equities given that the uncertainty over election results had kept some investors from buying; the outcome will provide “relief” and support share prices

• It’s a positive that the market can anticipate a “catch- up” in Japanese economy to global peers, backed by an economic stimulus; expectations are for special cash handouts for households and a revival of the ‘Go To’ campaign that provide discounts for travelers

• Still, there’s a need to monitor potential risks; while the parliament has found stability for the time being, the Kishida administration will need to make achievements that boost its support rating. Otherwise, it’s possible for politics to “destabilize” around the time of the upper house election in July

Source: Bloomberg