19th December 2012

Standard Life Investments: Radical policy shift for Japan?

The decisive victory secured by the Liberal Democratic Party (LDP) in elections in Japan over the weekend has given incoming Prime Minister Shinzo Abe a clear mandate to press ahead with campaign pledges to tackle Japan’s economic problems.

Ahead of the polls, Abe called for decisive action to stimulate Japan’s sluggish economy and tackle ongoing deflation. His agenda is certainly ambitious and entails significant new policy initiatives on the part of the traditionally conservative Bank of Japan (BoJ). In particular, Abe has demanded that the BoJ should embark upon much more aggressive monetary policy easing. He has also claimed that he is willing to challenge the BoJ’s historic independence if it fails to co-operate with his plans.

Early signs suggest that some sort of compromise between the incoming administration and the BoJ will eventually be forged. There already appears to be growing acceptance that Japan’s government and the central bank must work more closely in tandem. Looking ahead, the appointment of a new BoJ governor in the spring of 2013 is a key development to monitor. If a more proactive governor is appointed, this could usher in more reflationary policies relatively quickly. This, in turn, should drive the yen lower, which could have a significant impact on the competitive strengths of Japan’s export-oriented businesses, thus supporting Japan’s equity markets.

For more on Japan, and also analysis of political changes in Italy, please see our latest Global Spotlight: The show business of politics

To find out more about Standard Life Investments' Japanese equity capabilities, please contact your Sales Manager or call us on 0800 027 4828.

Standard Life Investments

FSA/FCA