Blackrock: Japanese Prime Minister Shinzo Abe's Liberal Democratic Party (LDP) and its coalition partners scored a convincing win that will maintain a large majority in both houses of parliament.
In brief:
- This should extend the lifespan of "Abenomics,"
- Including the Bank of Japan's mega stimulus
- We see the outcome as a mild positive for Japanese equities, though recent strong performance may spark some profit taking.
- We don't expect major changes to fiscal or monetary policy.
- We see a less than 50-50 chance that BoJ Governor Haruhiko Kuroda stays on for a second term after his term expires in 2018
- Even if Kuroda steps aside, any successor is likely to be a similar policy dove maintaining the central bank's bond yield target and asset purchases with inflation stuck well short of its 2% goal.
- Yet we see the potential for greater uncertainty with a new governor at the BoJ's helm.
- We believe the Abe government will push ahead with a planned increase in the country's sales tax but allocate the new revenue to children's education and paying for swelling social security spending.
- It may also push back the government's target for achieving a balanced budget to 2020 or later. That would be a negative for bonds and may prompt downgrades of Japan's credit rating.
- We are upbeat on Japan's economy.
- We believe higher global bond yields can also push up yields on Japanese government bonds beyond 10-year maturities.
- subdued inflation should keep the BOJ extra loose on policy.
