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Japan's Up and Coming PM, Shigeru Ishiba

Our quick market update following the recent elections in Japan
- Shigeru Ishiba won the LDP presidential elections held on 27 September to replace Fumio Kishida, after a close run-off against Sanae Takaichi. He will be rubber-stamped as prime minister by the Diet on 1 October and proceed to form a new cabinet.
- As financial markets had anticipated a win by Sanae Takaichi, perceived as reflationary and dovish, equities reacted by slumping, bond yields climbed, and the yen appreciated on Monday.
- Ishiba does not appear to have any strong convictions when it comes to economic and fiscal policy, but he is not seen as stock market-friendly.
- Based on Ishiba's past comments, he will largely continue Kishida's economic policy, including stepping up the efforts to raise the minimum wage. He said he respected the Bank of Japan's independence and hoped that it would normalise policy within the scope and at a pace that would not interfere with the economy and people's lives and that the current direction of monetary easing must be maintained.
- However, market participants are concerned that Ishiba might hike corporate tax and income tax on the financial income of high-earners. He emphasises the balance between economic growth and fiscal consolidation, but the market fears that his fiscal policy may be non-reflationary and tighter than the one currently in place.
- Ishiba said that he was going to dissolve the House of Representatives and call a general election on 27 October, which will be the first challenge for the new administration. Historically, stock markets tend to perform well during the election period.
- Ishiba’s base in the LDP is weak, and with the House of Councillors election coming up in July next year, it will be difficult for the new administration to come up with any original ideas. He is appointing Katsunobu Kato, who promotes Abenomics, as Finance Minister, and keeping Yoshimasa Hayashi as Cabinet Secretary to continue Kishida's policy, together with the dovish Yoshihide Suga as LDP's Vice President. For the time being, the Kishida administration's economic policy is expected to continue.
About the author
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Hiro Kasai, Senior Strategist
A founding figure in TMAM’s investment process, with three and a half decades’ experience in asset management, including spells as CIO of TMAM and CEO of its New York subsidiary, as well as head of Asian investment for the Tokio Marine Group. When not providing macroeconomic and market insights, Hiro enjoys onsen trips and countryside walks. |
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