Japan’s ruling party’s landslide victory is expected to ensure policy stability which will help underpin the Japanese stock market, says one asset manager.
Stable cabinet administrations in Japan have consistently contributed to stronger equity performance, according to Asset Management One International.
Past data indicates that investor confidence created by a stable government often lifts share prices.
On top of that is the impact on the Japanese stock market of the fiscal stimulus measures that the new government is expected to introduce.
Prime Minister Sanae Takaichi’s Liberal Democratic Party won a better than two-thirds majority of 316 seats in the House of Representatives, while its junior coalition partner Ishin, the Japan Innovation Party, won 36.
Previously, they had 232 seats between them.
The scale of her victory means that Takaichi can press ahead with her economic agenda, which is expected to include stimulus measures such as cutting Japan’s consumption tax.
Yuko Iizuka, an economist at Asset Management One, said Takaichi’s victory has pushed up the value of the Yen against the US dollar and other currencies, which will support the equity market.
“A stronger yen typically prompts buying by overseas investors and supports domestically oriented equities,” Iizuka said.
Markets will no doubt watch Takaichi’s government closely to see if it can proceed with its spending plans without leading to increased indebtedness.
Her administration is expected to press ahead with measures to cut the cost-of-living and growth measures such as tax changes to encourage individuals and businesses to invest their stockpiled cash.
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