Investors see Japan’s Kishida as “safe-pair-of-hands” but reforms in question

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TOKYO/SINGAPORE, Sep 30 (Businesshala) – Investors see Japan’s new leader, Fumio Kishida, as a steady consensus-builder to win the ruling Liberal Democratic Party and its coalition ally in the November general election. Can lead.

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But with the alleviation of some political uncertainties seen as gains to Japanese stock prices in the near future, investors aren’t sure whether they can move forward with the stringent measures needed to boost economic health.

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Kishida, 64, won the ruling party leadership’s vote on Wednesday and is set to become prime minister next week.

He’s inherited an economy that’s picking up steam due to a drop in coronavirus cases, an increase in vaccinations and an improving earnings outlook, all of which should support Japanese stocks.

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Japanese shares (.MIJP00000PUS) are up 1.6% this month, outperforming those in the United States (.MIUS00000PUS) and Europe (.MIEU000000PUS) by more than 3%.

Investors agree that Kishida is more predictable than his rivals for the top post, such as Vaccine Minister Taro Kono, with his anti-nuclear streak, and Sane Takachi, a diplomatic hawk and a social conservative.

“Kishida can be seen as a safe pair of hands, especially on the diplomatic front,” said George Boubours, head of research at K2 Asset Management in Melbourne.

“His long tenure as Minister of Foreign Affairs under Abe is a clear good, positive market sign.”

Kishida served in key positions under former prime minister Shinzo Abe and was seen as the successor to Japan’s longest-serving prime minister, who wields enormous influence in the ruling party.

But Kishida’s reserved style has also raised questions about whether he can push reforms to foster competition.

“The pandemic exposed how old Japan’s bureaucracy is. Japan is also lagging behind on environmental technologies. These are some of the issues the government needs to tackle,” said an investment manager at a major Japanese insurance firm.

“Markets probably see the outcome as a decision by LDP to avoid changes. If you put it well, Kishida represents stability. But if you put it badly, ships slowly. Will keep sinking and it won’t change.”

Abe’s promise to roll out structural reforms nearly a decade ago excited investors, but many think he fell short when it came to delivering results.

“If Kishida can present an inclination towards structural reform, it will likely be appreciated by offshore investors and will result in an influx of Japan’s stock market,” said Yunosuke Ikeda, chief equity strategist at Nomura Securities.

In the near future, major policy initiatives are unlikely as the election for the lower house should be held by November 28.

“Kishida will have to deal with an election campaign immediately. It will be difficult to talk about any painful reforms before that,” said Shinichi Ichikawa, Senior Fellow at Pictet Asset Management.

“I don’t think investors will build big positions before the election without knowing what kind of policies will be implemented.”

Reporting by Hideyuki Sano and Tom Westbrook Additional reporting by Kevin Buckland in Tokyo Editing by Robert Birsel

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