Japan Election and Macro Update

Shinzo Abe, who recently became Japan's longest serving prime minister, announced his resignation to undergo treatment for ulcerative colitis, a chronic illness that forced him to step down in 2007 from his first term as prime minister. While the process for deciding a successor for Abe is currently not clear, we believe the following can be expected in the near term:

  • Fiscal and monetary policy to remain intact—Bank of Japan Governor Kuroda's terms does not expire until April 2023


  • Corporate profits to continue their recovery towards pre-COVID levels

  • An orderly transition of power—Abe has announced his intention to retain in power until his successor is announced it appears a majority of the expected list of potential successors are currently working within the Abe administration

  • Japanese equity markets will likely not return to pre-Abenomics days

  • Long-term stability is expected for Japan's equity markets, supported by currency levels, inflows of international capital and reasonable equity price valuations.

In his second term that started in late 2012, Abe led a flexible fiscal policy, structural reforms including improving corporate governance, coupled with the Bank of Japan (BOJ) shifting towards a more accommodative policy, in our view. Abe's three-pronged policy package widely referred to as “Abenomics”—aimed to have Japanese domestic economy exit out of deflation as much as possible—seems to have attracted global investors' attention to investing in Japan's equity markets.

During Abe's second tenure in office, unemployment levels were reduced by half, falling from 4.3% in December 2012 to 2.2% in December 2019 due to various factors. Over the same seven-year period, the Nikkei 225 Index rose from 10,395 yen in December 2012 to 24,120 yen in September 2018. Inflation rates, which is still far from the central bank's target, has at least kept deflation at bay.