Skip to main content

Election Puts Japan on Track For More Stimulus

New prime minister, Fumio Kishida, should be able to get supplementary stimulus passed by the end of the year, Real Money's Alex Frew McMillan.

Japan’s recent election results appear favorable to global investors.

In fact, the new Japanese Prime Minister Fumio Kishida can have no excuses if he fails to implement his revival strategy for the world's third-largest economy after his party won a clear majority at parliamentary elections.

That’s the takeaway from TheStreet’s Alex Frew McMillan, who sees potential for the country’s new political majority.

“Kishida heads the ruling Liberal Democratic Party, which won 259 out of a possible 465 seats in the Lower House, Japan's House of Representatives,” McMillan wrote recently on Real Money. “The outright majority means the LDP should find it easy to pass legislation such as a supplementary stimulus budget.”

TheStreet Recommends

Investors cheered the certainty of the result with the Topix index of all major stocks on the Tokyo Stock Exchange rising 2.2% in the immediate aftermath of the vote.

"Good enough" is the basic verdict on the result, from the ruling party's point of view,” McMillan noted. “The voter turnout was low, at 56%, the third-lowest since World War II. The LDP lost 15 seats in total, including the constituency seat of LDP Secretary-General Akira Amari. It is the first time an LDP secretary-general has lost his constituency in parliament.”

(Amari, only in the party's No. 2 role since October 1, stays in parliament due to proportional representation, but the 72-year-old says he will step down as secretary-general.)

Kishida won the party's leadership thanks to internal support from its traditional, conservative power brokers, despite having no pulling power with the public. “He should now have no trouble pushing through the stimulus-spending extra budget he has said he'll present before the end of the year, which may include a cash handout to citizens,” McMillan said.

Japanese stocks sold off 7.1% in the days surrounding Kishida's appointment as prime minister, the so-called "Kishida shock." “Investors were spooked by his talk of taking from the rich to benefit middle-income families,” he added. “That caused him to back off his capital-gains hike. Perhaps we're now starting to see the kind of rally that accompanies most new leaders when they take power.”

Get more trading strategies and investing insights from the contributors on Real Money.