Japan: Politics in focus - OCBC

The Japanese economy has been on the recovery path on the back of Abenomics and Japanese Prime Minister Shinzo Abe has called a snap election to be held on 22 October to take advantage of the recovery in his approval ratings due to a rising threat from North Korea as well as to exploit the current weakness of the opposition, points out the research team at OCBC Bank.

Key Quotes

“The latest election poll shows that Abe’s ruling coalition heading for a big win after Tokyo Governor Yuriko declined to run for a lower house seat. Should the ruling coaling maintain its two-third’s super majority in the Parliament, the impact on market is unlikely to be significant. Should the unexpected happen, the USDJPY may fall as a knee jerk reaction to rising political uncertainty.”

“On monetary policy, we see the Kuroda’s reappointment as Bank of Japan Governor in April 2018 as dependent on the snap election outcome. Should the election result materialise in line with polls, the chance for Kuroda to be reappointed is high. This may reassure market expectation that BOJ will maintain its ultra-easing momentary policy.”

“It is expected that there will be no drastic changes on the politics of Japan. Party of Hope is a newly established political party. Some of their new members are formerly the core members of other political parties (LDP and Democratic Party). The Constitutional Democratic Party of Japan is just another “form” of Democratic Party. Other than Abenomics and consumption tax reform, it is expected that no significant changes would be brought by the Opposition.”

“The current situation is quite interesting. The Party of Hope cooperated with Democratic Party and Restoration Party respectively. However, they have quite different views on some political issues including Abenomics, tax reform and constitutional amendment. The (only) common purpose for their cooperation is to override Abe’s ruling. Therefore, it remains a big doubt whether they can form a Ruling Coalition (if they win over 2/3 seats in the House of Representatives).”