“Getting Japan back on track… has proved a slog,” says the FT. Abenomics, an attempt to end deflation and stagnation spearheaded by Prime Minister Shinzo Abe, is struggling. While prices are rising very slowly rather than falling, wages are still lagging, and an increase in the consumption tax, designed to trim the huge budget deficit, has sent the economy back into recession. So Abe has now called a snap general election to shore up his position and confirm that voters back his strategy.
But Abenomics should remain on track. Polls point to a landslide win, which would “revive investor confidence” in the reforms needed to raise Japan’s growth potential, says Andy Mukherjee on breakingviews.com. A big win would strengthen Abe’s position against internal rivals, giving him “wiggle room to push through unpopular” changes. For example, he needs plenty of political capital to outmanoeuvre the “powerful domestic farm lobby” and dismantle high tariff barriers on a range of agricultural products. These in turn would help to advance the 12-country Trans-Pacific Trade Agreement, which would secure a bigger share of world markets for Japan’s manufacturers and help encourage domestic and foreign investment.
In the meantime, the Bank of Japan will continue to print money and weaken the yen, thus bolstering the earnings of Japan’s exporters, who dominate the stockmarket. With valuations still reasonable, the outlook for Japanese equities remains encouraging.