Newton IM: Commentary on Japanese Prime Minister stepping down

August 28, 2020

Paul Brain, head of fixed income at Newton Investment Management and portfolio manager of the BNY Mellon Global Dynamic Bond Fund considers the outlook for Japan as Prime Minister Shinzo Abe steps down.

On Prime Minister Shinzo Abe legacy, he said:

He leaves behind the legacy of his unique approach in combining both monetary and fiscal policy. Without the three arrows of Abenomics which focus on aggressive monetary policy, fiscal consolidation and growth strategy, it is likely that Japan would have been in a more difficult position that it has been during his term. The unique combination has already spread to other major economies, especially over the covid crisis where we have seen the significant uptake of the combination of monetary and fiscal policy.

On the outlook for the Bank of Japan and the incoming Prime Minister, he said:

It is important that some stability is maintained in the Bank of Japan going forward. The Bank of Japan’s policies and Japanese Government Bond purchases have been one of the cornerstones of Japan’s policies for the past five or six years.

For any incoming prime minister the question will be is there is more that can be done in terms of government stimulus. Fiscal policies and tax policies will be highly anticipated in markets.

On the outlook for the Japanese bond market, he said:

Investors should not expect any major changes to the Japanese Bond Market as the market is controlled (and likely to remain controlled) by the Bank of Japan and the Treasury.

On the outlook for the Japanese Yen, he said:

There is potential for the Japanese Yen to be undermined by the political uncertainty. With the US dollar remaining weak from continued loose monetary policy, the Yen may not fall too much against it but other currencies such as the Euro and commodity based currencies can do better.