Japanese policy and policy updates

Global fund managers are scrambling to hire political consultants in Japan to forecast the most unpredictable leadership race in decades and its effects on investments in national security assets.

The rush to get expertise on the convoluted internal politics of the ruling Liberal Democrats, which was described to the Financial Times by fund managers based in the United States, Europe and Asia, intensified ahead of the vote to elect a leader in September. 29.

Polls over the weekend suggested that Taro Kono, the vaccine minister and the candidate with the strongest popular support among the four candidates, may struggle to overcome the complex mathematics of the faction-to-vote promise.

But the outcome of the vote, the fund managers said, could prove critical to the stock market and long-term perceptions of Japan’s attractiveness to foreign investors.

As one fund manager explained, Japan is more clearly affected by the global shift in political priorities and now feels even more able to justify tighter regulation and increasing government interference in markets.

The special emphasis, they added, was what each candidate would do with the Foreign Exchange and Trade Law (Fefta). The law was significantly strengthened in 2019 to redefine hundreds of Japanese publicly traded companies as national security – and, some suspect, was in part designed to dull shareholder activism.

“It is clear that whoever wins the four candidates, national security as an investment theme is on the table. Even pro-market like [Taro] Kono will have to resolve this issue, and the concern is that Fefta’s tightening will dampen interest in Japan, ”said Jesper Koll, senior advisor at Wisdom Tree Investments.

The LDP leadership race was sparked this month by the resignation of Yoshihide Suga, who only lasted a year as prime minister and whose departure was seen by some analysts as marking a separate line under the market-friendly “Abenomics” era.

The use of political experts is common in leadership elections in many countries, but the power of factions within the PLD means that the outcome of most races is usually clear long before the vote count.

A fund manager at a Hong Kong-based hedge fund said he was looking for policy consultants with insider knowledge of the balance of power between the different factions of the PLD because the competition was too close to be trust the forecasts of investment banks.

“This is the first time that we have felt the need to go through the process of counting which votes may come from which faction,” he said. “It almost looks like the US election.”

The LDP will choose its next leader through an electoral college, with its 383 MPs holding half of the votes and regional party officials making up the rest. If none of the four candidates obtains a majority in the first round, a second round will take place on the same day when only the votes of the deputies and the 47 prefectures are counted. This means that the candidate backed by the larger factions is likely to win.

The winner will become prime minister and lead the party in general elections due to be held by the end of November.


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