Blackrock Investment says Abe’s Japan election ‘mild positive’ for Japan stocks

Blackrock: Japanese Prime Minister Shinzo Abe’s Liberal Democratic Party (LDP) and its coalition partners scored a convincing win that will maintain a large majority in both houses of parliament. In brief:

  • This should extend the lifespan of «Abenomics,»
  • Including the Bank of Japan’s mega stimulus
  • We see the outcome as a mild positive for Japanese equities, though recent strong performance may spark some profit taking.
  • We don’t expect major changes to fiscal or monetary policy.
  • We see a less than 50-50 chance that BoJ Governor Haruhiko Kuroda stays on for a second term after his term expires in 2018
  • Even if Kuroda steps aside, any successor is likely to be a similar policy dove maintaining the central bank’s bond yield target and asset purchases with inflation stuck well short of its 2% goal.
  • Yet we see the potential for greater uncertainty with a new governor at the BoJ’s helm.
  • We believe the Abe government will push ahead with a planned increase in the country’s sales tax but allocate the new revenue to children’s education and paying for swelling social security spending.
  • It may also push back the government’s target for achieving a balanced budget to 2020 or later. That would be a negative for bonds and may prompt downgrades of Japan’s credit rating.
  • We are upbeat on Japan’s economy.
  • We believe higher global bond yields can also push up yields on Japanese government bonds beyond 10-year maturities.    
  • subdued inflation should keep the BOJ extra loose on policy.

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