Content provided by Scott Kubie, CLS Senior Portfolio Manager
A few weeks ago, Japanese voters gave Prime Minister Shinzo Abe more freedom to pursue his growth and reform agenda by handing his coalition majority control of the Parliament’s upper house. This victory follows up December’s election that gave Abe’s party, the Liberal Democratic Party (LDP) and its partners, a ruling majority.
The victory paves the way for the third rail of Abe’s economic package: structural reform. The first two rails were increased government stimulus and extreme monetary easing. Key structural reforms include corporate income tax cuts, free-trade agreements, and the restarting of nuclear power plants.
Some analysts are concerned Abe also wants to become more of a nationalist. One of Abe’s planks is to return Japan to being an “ordinary country” instead of having its defense policies dominated by postwar agreements. Asian countries are linked economically, but there remains great bitterness in Korea and China toward Japan for the brutal occupation of those countries in the early parts of the last century.
Overall, I find this a positive step for Japan. Now the question is whether Abe can marshal support in his party and coalition for the reforms he believes are necessary. It will take some work and compromise to get the key bills passed by the legislature. The good news is that no elections are scheduled for three years. This gives Abe some time to show the voters and investors some results.