Dan Carter, Fund Manager, Japanese Equities, at Jupiter Asset Management|Today’s official resignation of Japan’s PM Shinzo Abe ended weeks of speculation following a number of hospital visits over the past month.
Despite the resulting intraday market moves, Abe’s resignation should not come as a shock. He is a long-tenured PM with a history of ill health, and rumours of his departure had been circulating. However, the timing – in the middle of a global pandemic and its attendant economic turmoil, and with a US election in the near future – is unfortunate. This injection of general domestic political uncertainty is probably the most meaningful impact of today’s announcement. Fortunately, Abe has long since ceased to be the totem of Japanese economic and market renaissance that he once was, so his departure is considerably less troubling than it would have been say five years ago.
A mixed scorecard for Abe
At the end of his premiership we would consider Abe to have a mixed scorecard. His preferred choice for BoJ Governor (whose own term runs into 2021), Haruhiko Kuroda, has been an aggressive money printer, and his pressure on the corporate sector to squeeze more from their capital stock has led to better corporate governance and a movement towards more shareholder-friendly management. However, his success on fiscal reform is more difficult to determine with reduced corporate taxes on one hand but higher consumption tax on the other. His much publicised Third Arrow of structural reform, which had foreign investors frothing at the mouth at the prospect of potential changes in the labour market and the role of women in society and the economy, has been much more limited in its successes.
While there is no shoo-in for the top job, whichever way it breaks a political revolution is unlikely.
For us Japanese politics has often boiled down to the old the cliché “same wine, different bottle”: the post-Abe era is unlikely to have a starkly different policy agenda, and an orderly transition from one LDP grandee to another makes this truer than ever. Abe has announced that he will continue as PM until a successor is chosen and this should be seen as good news as it limits turnover in the top job and makes it more likely that gaffe-prone elder statesmen like Deputy PM Taro Aso are ruled out.
The two front runners for Prime Minister are probably Shigeru Ishiba and Fumio Kishida. While neither would be likely be politically revolutionary, Ishiba has been more critical of Abe in the past and was recently quoted saying: “We need to rethink everything about Japan… Stocks are not the whole economy. We need to change the system where all wealth accumulates with stockholders and people who manage companies.” Given his more populist stance it is unsurprising that he is popular, regularly topping public polls for the preferred next PM. Kishida by contrast has been moulded and promoted by Abe himself, and never will the cliché above be more true than if he is chosen to take over from his political mentor.