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Manager reaction: what Abe's latest win means for Japan

Manager reaction: what Abe's latest win means for Japan

The results of Japan’s Upper House election on Sunday were in line with expectations as Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) sealed a landslide victory.

News of his win has reinforced belief among leading Japanese equity managers that the reforms taking place in Japan’s economy will continue.

Speaking exclusively to Citywire Global, Robert Brooke, who works alongside Stephen Harker and Neil Edwards on the GLG Japan Core Alpha fund, said it has now given Abe and the LDP a firm grip over Japan for the next three years and will allow them to set the agenda.

However, he believes many commentators have been ignoring one crucial point.

‘Often overlooked is the role of the Japanese electorate. They have voted convincingly for a man who has set out a clear direction.'

'Abe’s growth target is reminiscent of that by Hayato Ikeda in 1960. He set the objective (widely ridiculed or ignored in the west) of doubling the national income in 10 years. He managed it in just seven.’

In terms of policy, he doubts investors should anticipate anything that could seriously move markets over Abe’s next term

‘It is now a question of looking for two things: a trend towards deregulation (and probably privatisation) plus the re-establishment of order in government finances.’

According to Schroders’ Shogo Maeda, manager of the Schroder ISF Japanese Equity fund, one of the near term issues is whether the government will implement its planned hike in consumption tax – from the current 5% to 8% – in April 2014.

‘We believe this has already been, to a large extent, discounted,’ he said.

Another test of Mr Abe’s determination to drive through reform, said Maeda, will come through negotiations to join the 11-nation Trans-Pacific Partnership (TPP), a proposed free trade zone.

‘With regards to his growth strategy at home, we believe he will prioritise speed and practicality, focusing on measures that can be realised quickly.’

‘As for the most difficult structural reforms, these will have to wait as they may not necessarily deliver substantial gains considering the intense political bargaining required.’

Negative outcome

Commenting before the results of the election were unveiled the managing director at SuMi TRUST, Hisaya Kambayashi, gave his views of both the good and the bad effects Abe's victory could have for Japan.

His positive view reflected our previous commentators views but among the negative effects he said the general public may become cautious of the LDP becoming too dominant.

'Popularity of the government and of the ruling parties may decrease if they do not implement policies and new solutions to the political agenda swiftly. The market may lose direction reflecting the balance between the economic situation and political stability.'

'Issues such as constitutional reforms and exercising of the right of collective self-defense will become more longer-term agenda being in coalition with New Komeito at least until the election of both Upper and Lower House to be held in 2016.'

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