Japan’s Political Landscape: A New Era Unveiled
A Historic Moment for Japan’s Leadership
Japan has witnessed a groundbreaking development with Sanae Takaichi’s rise to power as the country’s first female prime minister. This political shift has sparked a wave of optimism and anticipation for the future of Japan.
The Market’s Response: A Bullish Outlook
Japanese stocks have soared, with the Nikkei Index leading the charge. In October alone, it surged by an impressive 16.6%, and the upward trend has continued into November. This performance has positioned Japan among the top global stock markets, with the index officially surpassing the 50,000-point mark, indicating a bullish trend for Japanese equities.
A Complex Political Journey: Japan’s First Female Prime Minister
Sanae Takaichi’s path to the prime minister’s office was not without challenges. Her unexpected victory over Shinjiro Koizumi in the LDP presidential election, coupled with the withdrawal of the Komeito Party from the ruling coalition, temporarily hindered the formation of the LDP’s cabinet. However, the Japan Innovation Party’s alignment with the LDP led to the reestablishment of a “governing policy alliance,” paving the way for Takaichi’s historic appointment.
Fresh Energy and Leadership: Takaichi’s Impact
Since taking office, Takaichi has brought a breath of fresh air to Japanese politics. Her personnel arrangements, focusing on cross-faction integration and practicality, have softened the traditional power dynamics. Her strong and stable leadership image resonates with the public’s desire for both stability and reform. The formation of her cabinet has resulted in a surge of public support, boosting the Liberal Democratic Party’s momentum. During the Asia-Pacific Economic Cooperation (APEC) summit, she skillfully navigated diplomatic waters, engaging warmly with leaders, including former US President Trump.
A 20-Year High in Approval Ratings
Takaichi’s cabinet has achieved an impressive approval rating of 74%, reaching a nearly 20-year high. This is a significant leap from the 51% approval rating when the Ishiba cabinet was formed. With overwhelming public support, Takaichi has revitalized the LDP’s organizational strength and social momentum, solidifying her influence.
The New Golden Era: Promises and Potential Pitfalls
Takaichi, often seen as Abe’s successor, has continued his diplomatic and economic policies. Japan’s promise to invest $550 billion in the United States and the joint signing of an agreement to promote the U.S.-Japan alliance towards a “golden era” are significant steps. However, a Japanese research report warns of potential negative outcomes, including a 0.4% decrease in Japan’s GDP, a 1.3% drop in exports, and a 2.6% increase in corporate bankruptcies.
Economic Headwinds and Government’s Response
The Japanese Cabinet Office reported a contraction in Gross Domestic Product (GDP) of 1.8% quarter-on-quarter from July to September, marking the first shrinkage in six quarters. Prime Minister Kō, advocating for increased government spending and loose monetary policies, has faced a challenging economic landscape. His campaign slogan, “Japan is Back,” reflects his ambition to revive the economy and stimulate growth through deficit-financed bonds. The market’s response, with the simultaneous sell-off of the yen and Japanese government bonds, has been mixed. The yen’s sharp depreciation and the 10-year government bond yield hitting a 17-year high indicate a complex economic environment.
BOJ’s Monetary Policy: A Balancing Act
Despite the Takashi Cabinet’s popularity, addressing inflation effectively has become a pressing concern. The core Consumer Price Index (CPI) for September rose 2.9% year-over-year, in line with market expectations. However, real household wages have been declining, putting pressure on private consumption. Rice prices in Japan have doubled over the past year, with a 48.6% surge in September compared to the previous year. These factors have led to widespread public discontent. While the market initially expected the Bank of Japan (BoJ) to raise interest rates, Takashi’s indication of aligning with the government’s policy direction suggests a slower pace of rate hikes than anticipated.
The LDP’s Challenge: A Rightward Shift
While the Liberal Democratic Party (LDP) maintains its ruling status, the coalition government formed with the Japan Innovation Party has intensified the rightward conservative shift in Japanese politics. The coalition government does not hold a majority in either house, presenting challenges for the LDP’s rule. Japan’s recent history of prime ministers, including Yoshihide Suga and Shigeru Ishiba, each serving only about a year, adds to the uncertainty. Prime Minister Takaichi’s tough stance on China in defense and diplomacy further complicates Japan’s economic and foreign relations.
Breaking the Cycle: Takaichi’s Leadership Test
Takaichi faces the daunting task of breaking the cycle of annual prime ministerial changes. If she leads the LDP to victory and secures a smooth re-election next year, it could establish a stable, long-term administration, potentially ushering in a new golden era for Japan. This stability could further boost Japan’s economic performance and stock market.
Equity Japan Funds: Performance Analysis
The Japanese stock market has been on a continuous upward trajectory, supported by numerous favorable factors. The Nikkei 225 index has surged by 27.4% year-to-date as of November 11, ranking among the top global performers. The leading sectors driving this rally include AI-related semiconductor equipment, electronic components, and upgraded specifications to meet AI server demands. However, the performance of Japanese equity funds, measured in New Taiwan dollars, has lagged behind the Nikkei 225’s impressive gains.