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Reaction to the resignation of Japanese Prime Minister Suga

September 2021

Chern Kwok-Yeh, Investment Manager, Aberdeen Japan Investment Trust PLC

ASI reaction to the resignation of Japanese Prime Minister Suga

  • Japan’s Prime Minister Suga has decided to step down ahead of the LDP leadership and Lower House elections. Suga announced that he would not run in the LDP presidential election as he would concentrate on measures against COVID-19. Following intense criticism over the management of COVID and the decision to stage the Tokyo Olympics and Paralympics, the LDP Cabinet approval rating has slumped to below 30% from near 70% when Suga first took power a year ago.
  • The opposition parties are not considered to be well organised, so risk of a major regime change had been low, however, the main concern would be over losing the current super-majority as well as the potential for adding more coalition partners such as the Japan Innovation Party (JIP) along with existing Komeito party. There is common policy ground across the three parties with JIP proposing fiscal expansion centred around tax cuts.
  • The LDP presidential election will be announced on September 17 and conducted on September 29. The new Prime Minister can then dissolve the lower house and announce a general election date which could be pushed out from the original October 21st deadline to November.
  • Potential LDP candidates signal broad policy continuity and near term populist fiscal stance: Fumio Kishida is considered amoung the lead candidates. Former Foreign Minister who ran against Suga last year, announced a set of policy proposals just yesterday: “Kishida’s four pillars” and called for immediate implementation of economic stimulus including a range of rent and SME subsidies. A significant shift in tone from last year where he had a greater emphasis on fiscal consolidation.
  • Taro Kono has announced his decision to enter the race and other likely candidates include Sanae Takaishi.

Thoughts from Chern Kwok-Yeh, Manager of the Aberdeen Japan Investment Trust:

  • Although Prime Minister Suga’s resignation introduces a level of uncertainty, his ratings fell quickly with the public seeing him as ineffective in reining in COVID, even though he was a good technocrat under Abe.
  • The leadership race is likely between Kishida and Kono, as suggested by the media. We do not foresee any significant changes in policy, except in possible additional stimulus measures that Kishida has mooted. That said, with vaccination rates already accelerating in the country, now at 40+%, and the global economy recovering, we expect to see this translate into positive returns for Japanese corporates.
  • We do not foresee any significant changes in our outlook which is that the Japanese economy is on the mend especially as vaccination rates have been rising, and that the pickup in the global economy will be positive for Japanese corporates.
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