Japan PM poised to cement his position
Quickview: We see a more hawkish monetary policy stance as one implication of a Shinzo Abe leadership election win.
A win for Shinzo Abe in the Liberal Democratic Party (LDP) election this week will mean that he will serve as prime minister until September 2021. As a result he would become the longest serving prime minister in Japanese history.
Since Abe was not challenged in 2015, this will be the first contested party election since 2012. Former Defence Minister Shigeru Ishiba has thrown his hat in the ring, resulting in a two-horse race between Abe and Ishiba.
Abe is almost guaranteed to win. There are two rounds to the majority vote, and the second is heavily skewed towards the party's representatives in the Japanese parliament, the Diet. The party in the Diet is split into seven factions which tend to vote together and a majority has already declared its support for Abe.
The market focus will be on any power shift within the party and specifically, the party’s discontent on the scandals, which knocked Abe’s approval ratings earlier on this year. Media reports say that 70% of the vote would be considered a good result for Abe.
Turning to policy implications, in his recent campaigning Abe reiterated his ambition of economic recovery and for constitutional change to recognise the role of Japan’s military (or Self Defence Forces).
Abe is also becoming more relaxed about the central bank’s 2% inflation target and so we see a win for Abe being somewhat hawkish for the Bank of Japan, which has already ruled out further easing.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.