By Archibald Ciganer, portfolio manager of the T. Rowe Price Japanese Equity Fund.
In the short term, Prime Minster Yoshihide Suga, Shinzo Abe’s successor, term ends in September and a general election must be held before December. Suga has been struggling in the polls because of the delayed vaccination program and the decision to hold the Olympics.
There is likely to be uncertainty, but importantly, the LDP – the party of Abe and Suga – remain very much in control, with the opposition in disarray. Public support for the reforms we want to see – such as the reforms formerly known as ‘Abenomics’ – remains strong.
Japan is cheap and as it catches up with vaccinations, which it is, we believe the market will re-rate. Vaccine hesitancy is not really an issue, and the vaccination roll-out has been accelerating – we believe it will overtake the US in September.
Over the medium term, Japan is one of, if not the most, open and cyclical market. It is closely aligned to the global economy, and as the economy recovers post-pandemic, Japan’s corporates will benefit from this recovery more than other regions and markets.
Longer-term, while scepticism on corporate governance improvement remains, this is something we strongly believe in. With improvements, returns will increase and further attract foreign investors – which are currently underweight.
From a portfolio perspective, we are very excited by the digital opportunity in Japan. Japan leads globally in manufacturing excellence, but woefully lags in digital technology – the Japanese Government has realised this and wants to catch up. We have identified and invested in a number of companies benefitting from this significant opportunity.