A shift in investment strategy after Japan’s snap election

Results of Japan’s recent snap elections gave Prime Minister Sanae Takaichi a supermajority in parliament that could advance her administration’s economic agenda.

Still, the yen’s recent moves, high debt levels, and geopolitical tensions temper the outlook for Japanese equities.

Characterized by looser fiscal policies aimed at strategic economic growth and cost-of-living relief, Takaichi’s plans include consumption tax suspension, strategic investment on artificial intelligence and semiconductors, and income support for households.

During Takaichi’s post-election statements, financial market players focused on the lack of follow up on suspending the consumption tax. Investors have some doubts over her capability to bring it to fruition, given Japan’s ballooning public debt.

More clarity will come in the coming months amid Takaichi’s official appointment as prime minister and as the commencement of Japan’s budget discussions continue before the new fiscal year begins on April 1.

Shifting neutral

Japanese equities have rallied by 16.6% year-to-date, primarily driven by the results of the snap elections and as markets anticipate the Takaichi administration’s massive fiscal stimulus.

Investors anticipate continued volatility in the yen, driven by Japanese officials’ willingness to intervene, shifting expectations around potential Bank of Japan rate hikes, and uncertainty surrounding the government’s fiscal policy plans.

Given this, continued yen fluctuations have resulted in a shift in strategy toward neutral Japanese equities. Moreover, major headwinds such as the country’s high debt levels and elevated tensions with China continue to call for a cautious approach among investors.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)  

TRISTAN JAMIL AGUSTIN is a Markets Research Analyst at Metrobank’s Trust Banking Group, covering local and offshore macroeconomic research. He obtained his Bachelor’s degree in Management Economics with a Specialization in Financial Economics, from the Ateneo de Manila University and is a Certified Treasury Professional. Tristan tries to stay active by going to the gym and playing basketball.