The 2017 Japanese General Election – The End of Abenomics?
Back on September 25th Japanese prime minister Shinzo Abe called a snap election for Japan’s lower house of parliament – an election that didn’t need to be held until the end of 2018.
That election will take place this coming Sunday, the 22nd of October. Much like his counterpart in the UK, Theresa May, Mr Abe called for a snap election. He was seeking to capitalise on a divided and disorganised opposition as well as his own improving opinion poll ratings.
History has recently shown us that those two factors alone cannot guarantee a decisive victory. And that they can, in fact, quickly turn into “feet of clay”.
In the traditionally conservative world of Japanese politics, the gamble is expected to pay off for Premier Abe and his Liberal Democratic party. However, Mr Abe is taking another gamble with the election timing as he hopes that a convincing victory will allow him to stay as LDP leader until 2019. Thus making himself into Japan’s longest-serving premier in the process.
The challenge from within
While he does not appear to have much serious competition from traditional opposition parties, within the Diet, he does face a growing challenge to his crown from Yuriko Koike – the first female governor of Tokyo and a former cabinet member. She has “split” from the LDP to form her own movement Kibo no To, otherwise known as the Party of Hope. Though she will not be standing as a candidate in the parliamentary elections. Instead, she is choosing to retain the governorship of Tokyo for now.
It’s therefore unlikely that Kibo no To will be able to oust the LDP. Much like Boris Johnson before her, Koike will remain an influential figure in Liberal Democratic politics. That is, she’ll be able to criticise and comment from the outside without being directly involved in the day-to-day decision-making process.
Mr Abe might like to reflect that Boris Johnson was a thorn in the side of David Cameron when he was the UK PM and Johnson was Mayor of London. He is more like a barb to Theresa May, now that he is back inside the UK parliament and the cabinet full time.
An Abe win
The latest polling suggests that the LDP and Mr Abe will be returned to power with a comfortable majority, with Kibo no To coming a distant second at best. Despite their differences, Koike and her movement are likely to back the LDP in a coalition government.
The main opposition to this power block will come from the Japanese Socialists – a party associated with Unions and the Labour movement in the country, as well as Komeito a Buddhist Humanist party, which aims to represent the individual citizen rather than vested interests.
Should the polls prove to be correct, we are likely to see a continuance of Abenomics. The attempt to reflate the Japanese economy through a combination of social change, fiscal reform and monetary stimulus. Women reentering the workforce is an essential example of that social change. But in truth, the promised fiscal reforms have been sadly lacking. Although, if he is returned to power with a strong mandate, Mr Abe is likely to be more determined in pushing through much-needed reforms. The recent scandals at Toshiba and Kobe steel show there is still much work to be done.
The return of a familiar face
A win for Mr Abe will almost certainly result in the reappoint of Haruhiko Kuroda as Governor of the Bank of Japan. During his tenure, he has already overseen a massive expansion of the bank’s QE program. Which, though often criticised, does seem to be finally turning Japan’s economy around after decades of stagnation. Governor Kuroda may have been able to achieve even more in terms of generating a weaker Yen and greater Japanese export volumes. If only he were in complete control of the currency. However, the Yen’s reserve currency status means that the markets have an at least equal say in its performance. Safe haven flows tend to support the Yen in times of crisis or threat even if that threat might be existential to Japan itself. For example, a nuclear North Korea.
In the absence of a further Korean crisis or a sharp correction among globals markets, investors will probably view an Abe win and Kuroda reappointment as being positive for Dollar-Yen and the wider Japanese economy. We could see the Yen weaken (the Dollar-Yen rate climb) back through 113 once more and potentially test back above the long-term downtrend line that extends lower from the mid-June 2015 highs which currently comes circa 113.50.
To the downside, support should be found at 112.00 and again at 110.00. But if we break above 113.50 we can look for further gains to 115.00, with 120.00 Yen to the Dollar as the likely mid-term goal for both the BOJ and Yen bears.