The landslide victory in Japan for the party behind Abenomics is likely to be good news for industries from nuclear power to defense, while posing challenges to retailers and others.
Prime Minister Shinzo Abe’s ruling coalition retained its two-thirds majority in the 465-member lower house in last Sunday’s election—helped along by a disparate and weak opposition—paves the way for more ultra-easy monetary policy that has boosted Japanese stocks to the highest level in two decades and helped Asia’s second-biggest economy expand for six straight quarters.
That win boosts Abe’s chances at winning another term next year as head of his Liberal Democratic Party (LDP), which could make him Japan’s longest serving leader.
Yet, pressure is also growing for Abe to tackle Japan’s swollen debt, increase stagnant wages and overhaul the labor market to replenish a rapidly aging work force.
The yen fell 0.2 percent to 113.79 per dollar as of 12:38 p.m. in Tokyo, the lowest level in more than three months. Japanese equities advanced.
With typhoon rains drenching Tokyo last Sunday night, Abe deflected questions about his future and called for humility—signaling a lesson learned after scandals hurt his personal approval ratings this year.
Still, he said the victory showed “the people want us to move forward based on a stable political foundation and achieve results.”
Unofficial tallies showed the LDP winning 283 seats and its coalition partner Komeito taking 29 as of 11:39 a.m. Monday in Tokyo—roughly similar to the split after the 2014 election. Five parties and independents took the rest. Four seats had yet to be called.
“Corporate Japan is determined to play a role in rebuilding our economy and is cooperating with the Abe administration’s strategy,” Sadayuki Sakakibara, chairman of Japan’s main business lobby Keidanren, said in a statement. The two-thirds majority gives Abe the numbers to revise the pacifist Constitution in place since World War II, a move he sees as necessary to clarify the legal status of Japan’s Self Defense Forces.
Abe has called for more pressure on North Korea and strengthened the US alliance by cozying up to President Donald J. Trump, who is scheduled to visit Japan next month on a trip through Asia.
“With a win on this scale, probably changing the Constitution will become the main theme,” said Hiro Kishi, a former trade ministry official who is a professor at Keio University. “The chances have grown that reforms will not progress.”
Here’s what the election results mean for key industries and companies:
Large exporters
Abe won office in 2012 with a central bank policy of massive quantitative easing that pushed the yen lower. The currency has weakened from a 2011 peak and provided a tailwind for many of the countries’ biggest manufacturers, such as Toyota
Motor Corp.
Corporate profits have been boosted by a resurgence in Japanese exports, which have shown double-digit gains in the past three months.
Some of the companies that stand to gain the most from a depreciating yen include Fanuc Corp., Canon Inc. and Nintendo Co., as most of their sales come from overseas.
The question going forward is how long the government will continue its stimulus plans. With inflation still weak and wage growth still sluggish, Bank of Japan (BOJ) Governor Haruhiko Kuroda has been staying the course with its massive monetary easing program.
Consumer goods
Abe also billed the snap election as a chance to test public opinion on an increase in the national sales tax. When he raised the levy in 2014, the economy tipped into recession. Abe has twice since put it off but recent signs of growth make it hard to justify a further delay.
In the election campaign, Abe linked an envisioned increase in the levy to 10 percent, from 8 percent in October 2019, to planned spending on education and support for young families. That may help companies, including education-related publisher Benesse Holdings Inc. and cram-school operator Gakken Holdings Co.
Retail and consumer giants, such as Seven and i Holdings Co., Aeon Co. and Kirin Holdings Co. may suffer as higher taxes undermine consumer spending.
Defense
Abe campaigned on his administration’s record in responding to missile tests and militant rhetoric from North Korea.
This has prompted expectations his administration intends to maintain increases in spending on weapons made by companies, including Mitsubishi Heavy Industries Ltd., Kawasaki Heavy Industries Ltd., Toshiba Corp. and IHI Corp.
Nuclear power
Abe has vowed to restart more reactors after the nation’s atomic fleet was idled for safety checks following the 2011 earthquake and tsunami that caused a triple meltdown at the Fukushima Dai-Ichi nuclear-power station.
Abe’s win last Sunday came against the party of Tokyo Gov. Yuriko Koike, who has said she backs eliminating nuclear power and increasing the use of renewable-energy sources.
Kansai Electric Power Co. and Kyushu Electric Power Co. remain the most dependent on nuclear power, while industrial conglomerates, such as Hitachi Ltd. and Mitsubishi Heavy, are major suppliers to the industry.
Tobacco
Abe’s party has said it is considering raising taxes on electronic tobacco products, while leaving levies on conventional cigarettes at current levels. Former monopoly Japan Tobacco Inc. has lost ground to overseas rivals Philip Morris International Inc. and British American Tobacco Plc., which have taken the lead in Japan’s fast-growing market for heat-not-burn smoking.
Meanwhile, the ruling LDP has so far balked at proposals to ban smoking indoors ahead of the 2020 Olympic Games in Tokyo.
Casino legislation
An Abe victory is good news for companies like Las Vegas Sands Corp., Melco Resorts and Entertainment Ltd., which are jostling for position as the government moves toward allowing casino resorts in Japan.
The prime minister has supported the initiative as a means to boost the domestic economy. A substantial loss of seats in the election to the opposition could have emboldened critics of the casino plan, which surveys show is unpopular with voters.
The election itself has delayed until next year the submission of legislation laying out rules for gambling resorts. Legislators will probably hold off on submitting the bill until May or June, a government official with knowledge of the plans said last month.
Casinos in Japan aren’t likely to open before 2023, according to Bloomberg Intelligence.
Image credits: Bloomberg