Japan: Abe’s gamble paid-off well – Rabobank

The calling of a snap election by Japanese PM Abe has paid off with his ruling coalition performing better than expected and securing another 2/3^rd majority in the Lower House, explains the research team at Rabobank. 

Key Quotes

“The win has elevated Abe’s ability to consolidate his leadership of the LDP party in next year’s leadership vote meaning that he is well on his way to be Japan's longest serving post war PM. For investors, a continuation of that status quo removes the potential of increased uncertainty on a variety of policies such as the future of nuclear fuel in the country, Bank of Japan reform and the outlook regarding the expected sales tax hike in 2019.  Japanese equities have been lifted on expectations of loose fiscal and monetary policies going forward with the Nikkei 224 hitting its highest level since 1996 and securing its longest bull run on record. The strength of Abe’s victory may also lend vigour to his long-term aim of constitutional reform.”  

“Since 2015, Japan has been re-interpreting its pacifist constitution which declares that the Japanese people “forever renounce war as a sovereign right of the nation.” Although this has common ground with the constitutions of countries such as Italy and Germany, Japan’s Article 9 goes even further pledging that “land, sea, and air forces, as well as other war potential, will never be maintained”.  Principally Japan’s large Self-Defence Force exists for the sole purpose that its name suggests.”

“Although the re-interpretation of 2015 does allow it to assist its allies, according to Morihiro, a deputy director at the ministry of defence, Japan’s Self-Defence Forces cannot currently legally shoot down a missile that passes over the country unless it is aimed at or liable to damage Japan.  Abe, however, has long been a supporter of constitutional change. This would require a constitutional amendment and two-thirds support in both houses of the Diet. The election result and the increased threat from N.Korea’s nuclear programme suggest that Abe is likely to push for this by 2020.”