Japanese Stock Market: Political Opacity May Become Pressure
2024-11-04
■ In the context of the ruling party's possible acceptance of the opposition's request to expand fiscal policy, expectations of yen depreciation and stock market appreciation in the short term are strengthened.
■ If political opacity continues, it may put downward pressure on stock prices in the long term.
In the House of Representatives election on October 27, the ruling party failed to win most seats. After the election, both the ruling party and the opposition are exploring a new regime framework. Prime Minister Ishiba has the following three options: (1) expanding the coalition government, (2) regime change, and (3) maintaining minority rule.
Judging from the number of seats, the movements of the Democratic Party for the People and the Japan Restoration Party have attracted attention. Still, both parties have refused to form a coalition, so the possibility of option (1) is low. As for option (2), the largest opposition party, the Constitutional Democratic Party, has shifted from an expansionary fiscal route dominated by distribution to fiscal soundness under the leadership of Representative Noda and has proposed an inflation target of no less than 0%, showing its attitude of actively promoting the normalization of financial policies. Given the policy differences between the party and the Democratic Party for the People, which advocates a loose monetary policy, the possibility of regime change is low.
The most likely scenario is option (3); that is, the ruling party needs to obtain the support of the opposition when the bill is passed. Both parties demanded tax cuts and other fiscal spending expansion, and the Democratic Party for the People also advocated strengthening the taxation of financial income. The ruling party may need to accept these claims while passing the bill. The financial market is a total of expectations for expansionary fiscal policies, which may drive the yen to depreciate and the stock market to rise in the short term. However, policy decisions may take a long time, and with the approaching Senate election in July next year, political opacity may further increase. Over time, overseas investors' trust in the Japanese stock market may weaken.
After the general election results were released, Prime Minister Ishiba stated that he would continue to serve, but his support within the party has declined. Although Takaichi, who competed with Ishiba in the LDP presidential election, lost the election because most of his supporters lost the election and his party foundation was shaken, more calls for replacing the LDP president must be made. If the cabinet's approval rating continues to decline in the future, it may promote the trend of replacing the president. Political opacity may further exert downward pressure on stock prices, and we must be vigilant about this risk.
■ If political opacity continues, it may put downward pressure on stock prices in the long term.
In the House of Representatives election on October 27, the ruling party failed to win most seats. After the election, both the ruling party and the opposition are exploring a new regime framework. Prime Minister Ishiba has the following three options: (1) expanding the coalition government, (2) regime change, and (3) maintaining minority rule.
Judging from the number of seats, the movements of the Democratic Party for the People and the Japan Restoration Party have attracted attention. Still, both parties have refused to form a coalition, so the possibility of option (1) is low. As for option (2), the largest opposition party, the Constitutional Democratic Party, has shifted from an expansionary fiscal route dominated by distribution to fiscal soundness under the leadership of Representative Noda and has proposed an inflation target of no less than 0%, showing its attitude of actively promoting the normalization of financial policies. Given the policy differences between the party and the Democratic Party for the People, which advocates a loose monetary policy, the possibility of regime change is low.
The most likely scenario is option (3); that is, the ruling party needs to obtain the support of the opposition when the bill is passed. Both parties demanded tax cuts and other fiscal spending expansion, and the Democratic Party for the People also advocated strengthening the taxation of financial income. The ruling party may need to accept these claims while passing the bill. The financial market is a total of expectations for expansionary fiscal policies, which may drive the yen to depreciate and the stock market to rise in the short term. However, policy decisions may take a long time, and with the approaching Senate election in July next year, political opacity may further increase. Over time, overseas investors' trust in the Japanese stock market may weaken.
After the general election results were released, Prime Minister Ishiba stated that he would continue to serve, but his support within the party has declined. Although Takaichi, who competed with Ishiba in the LDP presidential election, lost the election because most of his supporters lost the election and his party foundation was shaken, more calls for replacing the LDP president must be made. If the cabinet's approval rating continues to decline in the future, it may promote the trend of replacing the president. Political opacity may further exert downward pressure on stock prices, and we must be vigilant about this risk.