Post-poll, Abe Government to continue monetary expansion, lift GST

TOKYO – In a Client Note reviewing the outcome of the Japanese Lower House election, global asset manager Natixis describes Japan’s strong economic growth and record high geopolitical risk in the Korean peninsula as important tailwinds leading the Abe Government to victory. Swing votes distributed to a wide range of oppositions also turning into the ruling LDP’s advantage.

“After the election, policy uncertainties that hung over during the campaign have been largely wiped out,” Natixis says.

“Firstly, the terms of the BoJ’s Governor Kuroda and Deputy Governor Iwata can be extended next spring, enabling the Bank to continue an expansionary monetary policy.

“Secondly, the VAT rate is anticipated to be raised to 10% from 8% in October 2019.

“Thirdly, the Lower House could initiate discussions to amend the Constitution, as some of the Opposition parties are in favour of the revision.”

More importantly, argues Natixis, the LDP has arguably won political capital at the election to implement meaningful structural reforms to lift the potential growth rate.

It is all the important to make progress while the tailwinds from the global cycle last, says Natixis, because the Bank of Japan and the Government are depleting policy ammunition to counterbalance the short term adverse effects of carrying through necessary reforms.  www.natixisresearch.com (ATI).