The announcement that Shigeru Ishiba has replaced Fumio Kishida as Prime Minister of Japan has led to significant volatility in the Japanese stock market. On Monday September 30, the Nikkei fell nearly 5% from the previous week’s closing price.
Yuko Iizuka, Economist at Asset Management One, one of Japan’s largest asset managers with $451bn in assets under management*, comments:
“The stock market has initially been wary of new Prime Minister Ishiba due to fears he will adopt an ‘anti-Abenomics’ stance. Previously he had supported further interest rate increases and greater taxation of investment income.”
“However, since taking office Ishiba has stated he wants to ‘maintain the pace of new capitalism’. He has also suggested he will continue the policies of the Kishida administration on monetary easing and encouraging people to invest rather than save in cash.”
“Japanese stocks rose sharply during previous dissolutions of government in 2005 and 2012. These rises were backed by expectation that economic policies would be market-friendly. This may not be the case this time around.”
“The outcome of the General Election on October 27 will play a major role in whether Ishiba will be able to implement the policies he has been advocating for. There is a risk the Liberal Democrat Party (LDP) will lose a large number of seats. If that happens, Ishiba may not be able to gather enough support within his party to push through his policies.”
Challenges for the new Prime Minister on inflation, public finances and population
There are several major challenges for the new Prime Minister, says Yuko Iizuka:
“In order to completely exit from deflation, the new Prime Minister needs to implement measures to support higher prices. He should also support businesses to invest in increased productivity and ensure tax policies encourage companies to increase wages.”
“There are also concerns over the sustainability of Japan’s public finances and social security – particularly against a backdrop of a shrinking population. Even with rising wages, consumption may be suppressed as people save more in preparation for retirement.”
“In addition to this, the new Prime Minister should initiate institutional reforms to address the declining population directly. The working age population of Japan is expected to decrease significantly during the 2030s. Institutional reforms may also have to be made in order to improve the sustainability of public pensions.“
Asset Management One outline PM Ishiba’s main policies
Based on an analysis of past speeches and press releases, Asset Management have outlined PM Ishiba’s main policies:
| Economy | · Implementing large-scale measures for regional revitalisation |
| · Transitioning supply chains centred on exports, such as semiconductors, towards using domestic producers | |
| · Ensuring economic policy remains growth-oriented | |
| Finance | · Ensuring financial policy is in line with the goal of a stable, growth-oriented economy |
| · Potentially raising tax income through corporate and income taxes (aimed at wealthier individuals, excluding New NISAs and Individual Defined Contribution (iDeCo) pensions) | |
| Monetary policy | · Supporting gradual monetary normalisation by the Bank of Japan |
| Currency markets | · Maintaining an appropriate exchange rate level with the US Dollar between 110 and 140 yen |
| Energy / miscellaneous | · Acceptance of nuclear power, despite opposition in the past |
| · Establishment of a Disaster Prevention Agency and upgrade it to a Ministry | |
| · Establishing an Asian equivalent of NATO | |
| · Further accelerating the inherited “new capitalism” policies of the Kishida administration |
