Invesco: Japan election - Is status quo a bad thing?

October 4, 2021

For many,  Fumio Kishida's appointment as Japan’s new PM much follows the status quo. The LDP preferred the low-key Kishida to his outspoken, reform-minded counterpart Taro Kono who led in the opinion polls.

Kishida’s manifesto pledged tens of trillions in Japanese yen in supplementary budget to immediately help reboot the economy and committed to ongoing Covid measures. It’s this that likely helped him to take the win – as many see this as the key to Japan’s post-pandemic recovery.

Not only that, but in the second round of voting, Kishida gained the support of Sanae Takaichi, another leadership candidate who garnered a larger-than-expected portion of the vote in the first round. Takaichi, a proponent of Abenomics (aggressive monetary and fiscal stimulus) looks likely to become a cabinet member, so pro-growth economic policies are secure for the time being.

The resignation of the less-than-popular Prime Minister Yoshihide Suga, coupled with the successful implementation of electoral process to vote in a new leader, has paved the way for the LDP to win a majority in this autumn’s Lower House Election. The immediate future for Japan is looking much more stable.

The significant increase in vaccine uptake and decline in new cases meant that the government were finally able to remove the “state of emergency”. This set in motion a one-month transition period starting on 30th September. With the new leadership in place, the goal will be to move forward with reopening the economy and learning to live with Covid.

Despite the cabinet’s fall in popularity, support for the LDP party has remained high while support for opposition parties hasn’t really risen either. The eventual reopening of the economy, and pro-growth fiscal policies, could therefore help the LDP strengthen its political position. 

From a structural perspective, Kishida backs income redistribution, which we believe is valid policy. Since Abenomics kicked off in 2013, corporate earnings have increased, and Japan’s GDP growth has resumed. In contrast, the proportion of income shared with the workforce at large enterprises has been declining. If Kishida can incentivise companies to share income with their employees and improve productivity at the same time, these healthy wage rises should also help Japan sustain long-term economic growth.

Much-needed digital transformation and corporate governance reform are also part of his agenda and so we expect them to continue.

Broadly speaking, we’ve welcomed this smooth political transition, which has come mid-pandemic and believe it should be positive for Japan’s recovery.