Summary:
- Party of Hope’s leader Koike sketches out her campaign promises
- “Yurinomics” could result in a hefty injection of liquidity
- Japanese snap election will take place on 22 October, Abe is expected to win
Politics has played a major role across the developed economies so far this year. We’ve had elections in Germany, New Zealand, France and most recently the independence referendum in Catalonia. All that events have brought about an increase in uncertainty which isn’t desirable by investors. Japan will be another country where the election is going to take place later this month, it’ll be the unplanned event though.
Japanese Prime Minister Shinzo Abe chose to dismantle the parliament some time ago and called the snap election, the move which is set to help him reinforce his leadership. Abe decided to do so because polls had suggested that he could have counted on required support to increase his advantage in the lower house. The scenario sounds similar when we look back to the UK’s snap election where Theresa May failed to obtain a required amount of votes to solidify her position. It resulted in a need to put together a hung parliament which was a clear debacle for the UK’s incumbent Prime Minister. The Japan’s political scene could face a similar challenge in a few weeks as invincible Abe might lose some of seats due to forging a new party – Party of Hope – by Tokyo Governor Yuriko Koike.
In a manifesto, dubbed Yurinomics, she spelled out her campaign promises which are to help her beat PM Abe. To be frank, even as the Party of Hope isn’t doomed to failure, a win over the ruling LDP seems to be unlikely. Either way, Koike isn’t going to sit around and has come up with some curious proposals which have been designed to draw most backers for her Party of Hope. The most noteworthy ones are as follows:
- imposition taxes on large companies’ cash reserves
- vowing to freeze a consumption tax increase scheduled to take place in 2019
- maintaining Abe’s unprecedented monetary easing for the time being and working with the Bank of Japan to seek a smooth exit strategy
- cutting spending on public works
- softening legal regulations which have been not enough easy under Abenomics
All the above-mentioned promises are clearly aimed at drawing more voters who could cast the votes in favor of the Koike’s party. Moreover, even as Koike acknowledged some successes of the Abenomics, she also stressed that those have yet to be felt by ordinary people. It’s worth underlining that the idea of imposing taxes on cash reserves of the largest Japanese companies could help the economy restore fiscal balance as reserves are estimated to be more than 300 trillion JPY. Notice that Abe’s ruling coalition partner Komeito said in its own policy platform this week it would consider making firms reveal the amount of reserves they hold.
By and large, chances to defeat the LDP by the Party of Hope seems to be mediocre, however a substantial loss of seats of the LDP could prompt the ruling coalition (LDP and Komeito) to oust Abe as LDP leader, a position he has held since 2012. A response from financial markets has been moderate so far, nonetheless some chaotic moves could occur closer to the election date. Given that the Party of Hope proclaims that it would work with the BoJ on an exit strategy from accomodative monetary policy, its good outcome in the election could offset a negative impact on the yen stemming from a rise in political tailspin.
The USDJPY is being uninterruptedly driven by the US 10Y yield and if the latter keeps on rising, it could give a rise to a further rally on the currency pair. 114.3 could be seen as a hard obstacle to jump over once buyers want to continue its move. Source: xStation5