Japan Stimulus Set to Pass Easily After LDP Retains Majority
(Bloomberg) -- The outright majority secured for Japanese Prime Minister Fumio Kishida’s ruling party is expected to bring about a smooth passage of fiscal stimulus and ease concerns of political uncertainty, market players said.
Kishida’s ruling Liberal Democratic Party won 261 seats in a Sunday election to preserve its outright majority in the 465-seat lower house of parliament, public broadcaster NHK said. Although the party dropped from the 276 seats it held when parliament was dissolved, the LDP avoided worst-case scenarios that opinion polls had suggested beforehand. Nikkei 225 futures jumped 2.4% in Osaka Monday morning.
“By securing a majority, it seems the fiscal stimulus plan will be decided smoothly,” said Takahiro Sekido, chief Japan strategist at MUFG Bank Ltd. in Tokyo. “Basically, it can be said there is no factor to which market prices would react.”
Kishida has pledged to draw up measures worth tens of trillions of yen soon after the vote, and told national public broadcaster NHK on Sunday night that he wanted to pass an extra budget by the end of the year. The ruling coalition will have to work on bolstering an economy that likely shrank over the summer due to a Covid surge and supply bottlenecks, according to estimates by several economists.
“It’ll be positive because we’ve got a confirmation of continuity, there will be no ugly surprises in policy but at the same time there’s a stimulus to the government to change in a good way,” said Richard Kaye, a portfolio manager at Comgest Asset Management Japan Ltd.
But the victory for the LDP, which has ruled Japan for all but four of the past 66 years, could splash cold water on hopes for economic reforms, some said.
“The reform mindset is the most important factor for raising the stock market, but so far this spirit hasn’t been seen by the Kishida administration. Foreign investors in particular won’t be satisfied,” said Tatsushi Maeno, senior strategist of Okasan Asset Management Co. in Tokyo.
Kishida campaigned on plans to spread the fruits of economic growth more evenly, after low-paid workers were disproportionately hit by falling incomes during the pandemic. But he has put off detailing many of his economic policies until after the election, with many investors still uncertain whether his redistribution policies are just talk or will be followed by action.
“Since the supplementary budget is expected to be decided by the Cabinet by the end of November, increasing the issuance of government bonds will continue to be a major theme,” said Katsutoshi Inadome, a senior fixed income strategist of Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “But at least the result of the lower house election won’t cause bond selling.”
Projections published by Yomiuri and Nikkei newspapers on Friday had shown that Kishida, who took over from unpopular former Prime Minister Yoshihide Suga about a month ago, might struggle to maintain his rule without the help of junior coalition partner Komeito.
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