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Suga so far – success, failure, or too early to tell?

We’ve taken a look at how Japanese Prime Minister Yoshihide Suga has fared since taking office, the challenges that lie ahead, and what potential investment opportunities Japan could offer.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Yoshihide Suga became Japan’s new prime minister in September last year. As Shinzo Abe’s former right-hand man, there were hopes he would continue carrying out his policies. But also bring fresh and progressive government plans, alongside plans to further support the economy.

Suga’s been in power for almost ten months now. While this a relatively short period to judge his performance, we can start to paint a bit more of a picture.

We’ve taken a look at what Suga has done so far as PM, some of the criticism he’s faced, and what potential opportunities lie ahead for investors.

Suga so far

Despite being in power for a short time, plenty’s happened over Suga’s tenure. Perhaps the biggest event, and his greatest challenge so far, has been the coronavirus pandemic. In the early stages of the pandemic, Japan controlled the virus well and Suga vowed the virus would be conquered.

Suga’s government spent roughly $1.6 trillion over the course of 2020 and approved a further $1 trillion budget for 2021 to help combat the virus and aid Japan’s recovery. But Japan’s debt now sits at more than 2.5 times the size of its economy. Suga will need a solution once the pandemic eases as the size of Japan’s debt pile could hinder any recovery.

Suga continued to support most of his predecessor’s economic plan, known as Abenomics, but he also confirmed his own to help boost the economy. Part of the budget has been allocated to help fund things like Japan’s digital transformation efforts and developments in green technologies. Perhaps the most surprising announcement was the plan to fight climate change. Suga vowed Japan will become carbon neutral by 2050.

In recent months though, Japan’s experienced a surge in coronavirus cases, which threaten to derail Suga’s plans. That said, the total number of cases is still lower than most other developed nations.

To combat rising cases, Suga placed Tokyo and some surrounding areas into a state of emergency. The state of emergency has been extended a number of times since the start of the year, with the most recent likely to be in place until the end of June.

This, combined with a lacklustre vaccine roll-out and confusion over whether the country will stage the Olympic Games this year, has led to fierce criticism. Only 10% of the population has been vaccinated and a recent poll shows between 70-80% of the population want the Olympic Games to be cancelled or postponed. Unsurprisingly, his approval rating dropped to its lowest level since he took office.

Recent vaccination efforts have been accelerated though, with almost half a million doses being administered every day. Suga believes this push will help quell the concerns around the Olympic Games and help them go ahead safely. He’s also received support from certain G7 members, who think the games will signify global unity in beating coronavirus.

The turnover in Japanese PMs is famously quick though. Before Shinzo Abe’s record breaking eight years at the helm, the average tenure for the PM, dating back to the second world war, was just two years.

Has Suga done enough to secure another term in office? Only time will tell. But we’ll have a clearer picture when he faces the party leadership election in September and a general election towards the end of October.

What are the potential opportunities for investors?

It’s important to remember that Suga’s time in office is probably too short to accurately assess the impact his policies will have going forward. But we can look at what potential opportunities lie ahead.

Suga’s plans for Japan’s digital transformation could be an area where investors can take advantage. He’s created a digital agency, which aims to digitise the entire society, including cashless payments, healthcare and education. This could benefit companies across a range of different sectors, and force others to adapt and innovate. These are good signs for investors and could bring opportunities. Although nothing is guaranteed.

Small changes have already taken place. For example, the old tradition known as hanko, which is a physical stamp used in place of signatures for official documents, has been abolished. Suga stated that digital admin needs to improve, and companies are already looking to make changes.

Environmental, Social and Governance (ESG) factors are also receiving some attention from the Suga government. He’s planning to fund a new $2 billion green bond to help with environmental issues and aid the development of green technologies. Suga lists “green growth” as a key policy going forward. He plans to reduce Japan’s greenhouse emissions and as a result has raised the target for 2030.

This is a growing area that investors haven’t had a great deal of access to in Japan historically. So a push from the government could open new avenues.

Suga’s foreign policy efforts could also benefit investors going forward. He’s looking to build better relationships with other developed nations, particularly Australia, India and the US. He’s met with Joe Biden and part of their agreement was to improve supply chains between the two nations. This could mean a boost for Japan’s exports, benefitting a range of sectors from semiconductor manufacturers to retailers.

It’s encouraging to see a push from Suga in these areas and given time, we could see more opportunities open up for investors. There are plenty of challenges ahead though. Most of his attention has been focused towards combatting the coronavirus. So he’s had very little opportunity to impact large scale change or for his policies to take hold fully.

We think Japan offers great investment opportunity. And as it’s still off the radar for lots of investors, the Japanese stock market looks attractively valued. But nothing is guaranteed. We would encourage investors to take a long-term view and expect periods of ups and downs.

This article isn’t personal advice. Investments will rise and fall in value, so you could get back less than you put in. If you’re not sure what’s right for your circumstances, ask for financial advice.

See our latest sector review on Japan

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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