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What Japanese investment experts think about Japan's new Prime Minister

We asked three Japanese investment experts what they think Suga's appointment could mean for the country’s economy and stock market.

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.

After almost eight years at the helm, Shinzo Abe has resigned as prime minister of Japan.

His replacement, Yoshihide Suga, faces some tough decisions. Aside from the ongoing pandemic, he needs to tackle longer-term issues like Japan's poor age demographic and high levels of debt. He'll also be tasked with hosting the postponed Olympic Games in 2021.

Below, we ask three investment experts what his appointment could mean for the economy and stock market.

Nothing in this article is personal advice. If you're not sure if an investment is right for you, please ask for advice. Investments will rise and fall in value – you could get back less than you invest.

Dan Carter, Jupiter Fund Management

Suga's political instincts are reportedly to improve life for the average Japanese citizen – especially those living outside Tokyo. Investors are hoping for policies which genuinely revitalise non-metropolitan Japan.

Yoshihide Suga – some background

There were three potential successors to Shinzo Abe.

As a son of a strawberry farmer, Suga has come from humble beginnings. He slowly climbed the political ranks by first standing in city council elections and becoming a member of the Diet in 1996.

In 2005 he became a cabinet minister under former Prime Minister Junichiro Koizumi, and gained influence in the Abe cabinet that followed.

For most commentators the 71-year-old’s appointment wasn’t a surprise, as he was Abe’s right hand man during the majority of his time in office.

He's known to be a big supporter of Japan's tourism drive. The industry has suffered a huge knock from Covid, but could be boosted by the hastening of long-awaited casino development.

Aside from mobile phone prices, Suga's other pet issues include the famously fragmented regional banks sector and the country's incongruously slow pace of digital transformation.

If he can make any headway with these issues there will be many winners and few losers. The regional banking sector is woefully unprofitable, propped up only by valuable holdings in client equities.

Meanwhile the corporate sector is still paper-based and consumption spending is dominated by cash – anachronistic for an otherwise technologically advanced country like Japan.

Sophia Li, First Sentier (formerly First State) Investors

Suga's appointment is positive for policy stability.

He's been a strong supporter of Abe's flexible fiscal and monetary policies, as well as corporate reforms. He shows strong support for Bank of Japan Governor Kuroda and expects ultra-loose monetary policy to continue.

He's more worried about the economy however, and will try to revive it with extra fiscal stimulus this year. Suga has committed to not raise consumption taxes in the next decade.

Overall, our outlook for Japan is unchanged.

Nathan Gibbs & Piya Sachdeva, Schroders

Although the timing of Abe's resignation was a surprise to us, Suga is a fairly straightforward replacement. He's been a strong ally of Abe and has worked as his right-hand-man in many areas, including keeping some of Abe's potential scandals out of mainstream press.

The chance of a snap election before the end of the year may be a bit higher, but a victory for the LDP would probably just extend the ‘no change' view. It would also avoid the additional uncertainty of an election next year.

Suga has already said he wants to continue and enhance ‘Abenomics'. The three pillars are aggressive monetary easing, strong government spending, and reforms to make the Japanese economy more competitive. Suga could even reignite structural reform - aiming to reduce mobile phone rates, promote digitalisation and consolidate regional banks.

On foreign policy, recent remarks suggest he will continue Abe's approach, centred on a Japan-US alliance and stable ties with China.

As part of our quarterly Japanese sector review, we wrote about how coronavirus has affected Japan's economy, how Japanese funds have coped and what the future could hold.

Read our full outlook on Japan

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    Article image credit: Carl Court / Getty Images.

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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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