What effect has the resignation of the Japanese Prime Minister had on Japan’s stock market? From Toby Trinder
On the 28th August, Japan’s Prime Minister, Shinzo Abe resigned due to declining health. Although there had been rumours circulating regarding his state of health, this did appear to take investors by surprise, with the Nikkei 225 index declining by 2% on the day. Despite Japan’s relative success in the handling of the Coronavirus, Abe’s popularity has declined in recent polls, although it did remain above what many see as the critical level of 30%.
The initial market reaction has been negative for 2 reasons. Firstly, Abe’s leadership had brought an extended period of stability since he took over in 2012, recently becoming the country’s longest serving Prime Minister. In the 5 years prior to him, Japan had been through 5 different Prime Ministers.
The second reason is that Abe’s economic policies have been market friendly, especially the Bank of Japan’s ultra-loose monetary policy, which essentially lowers the cost of borrowing for businesses and consumers, in order to encourage economic growth. There is the possibility that Abe’s potential successor will not be in favour of such aggressive monetary stimulus and the market reaction may have reflected this concern.
Many commentators believe it is unlikely that the political agenda within Japan will have a material impact on Japanese equity markets in the near term. There is no known significant opposition to Abe inside or outside of the ruling Liberal Democratic Party (LDP). Although Abe has stepped down, he is likely to obtain significant influence over his successor. Therefore, it is believed the policy stance taken by Abe in recent years will be continued under a new Prime Minister. As a result, we believe the Japanese stock market remains attractive.