Japan: Landslide Victory

It is a landslide victory for Takaichi's LDP. The early result is showing the LDP winning 316 seats and the coalition has secured super majority with 352 seats in the 456 seats Lower House. The opposition, Central Reform Alliance, performed terribly and could see only 49 seats left. The result fits earlier polls but few it is expecting the LDP to get such a huge win. Market participants are reacting by renewed JPY offers, in fear of more fiscal irresponsibility. 

In reality, we believe such fear has been exacerbated by neglecting the material changes in Japanese economic landscape compared to Abe's era. While PM Takaichi is definitely pro-stimulus, the business price/wage setting behavior has already substantially changed from a decade ago and the momentum does not look like to be slowing in a short term. Thus, there is no need of Abe's era massive stimulus policy to jumpstart the economy. PM Takaichi seems to be considering market sentiment by shelving food tax cut that was promoted in her campaign, in sight of fiscal irresponsible sentiment and rising yield. These factors lead to our expectation that any potential stimulus wouldn't be COVID era and rather be more targeted at cost relieve and strategic investment.

PM Takaichi's win could be partially attributed to her latest round of economic stimulus, but her strategic approach towards voters can not be neglected. She has taken a more lively approach in public imaging, where she appeared to be more attached to local culture including manga, band music and was not afraid to show that side of her. It is quite uncommon in Japanese politicians. Also distancing herself with old coalition partner Komeito, Takaichi seems to be able to grasp the heart of voters that the LDP is head towards a change. 

The landslide victory may also help Takaichi to unite LDP, which has historic internal division, to facilitate her policy execution. Overall, we expect policy to remain stimulative but not massive. There will likely be more verbal and potentially actual intervention in the foreign exchange and bond market, if we continue to see more speculative spikes. In a medium term, those spikes seems to be overdoing themselves and should moderate.