This week several prominent Japan-watching economists voiced their opinions regarding newly appointed prime minister Ishiba.
Nicholas Smith of CLSA says Ishiba will likely be gone in a year
Screen grab courtesy of Nicholas Smith’s LinkedIn page.
Managing director and senior fund manager at UBP Investment, Zuhair Khan predicts political volatility and yen strength in Japan
Political Volatility: Ishiba's leadership will lead to increased unpredictability due to his lack of charisma and the breakdown of the LDP faction system.
Yen Strength: Ishiba’s support for BOJ policy normalization points to continued yen strength.
Snap Election Impact: The LDP will likely lose seats in a snap election but retain a majority due to Ishiba’s clean image.
Economic Policy Continuation: Ishiba will continue stimulative policies but may focus more on regional economies and disaster resilience.
Head of Asia-Pacific for Capital Economics Marcel Thielant on the Japanese Yen and Economic Outlook
Market Rebalancing: Thielant believes the current market reaction is mostly a rebalancing due to the stronger yen, which is weighing on the stock market. There are also concerns that Ishiba might raise corporate taxes, though it's unclear if he has the influence to push this through.
Bank of Japan's Independence: While the Bank of Japan is technically independent, Thielant notes historical precedence where it resisted government influence, highlighting that current governor Ueda is likely to stand firm against political pressure.
Yen Strength Forecast: Thielant expects the yen to continue strengthening, forecasting it at 135 against the dollar by 2026. This will likely create headwinds for Japanese equities, as companies with overseas earnings will see reduced profits in yen terms.
Comgest’s Richard Kaye on Japan's Monetary Policy and SME Challenges
Monetary Policy Outlook: Kaye argues that Japan does not have a significant inflation problem, as recent inflation stems mostly from a weak yen and rising import prices. Therefore, there is no pressing need to raise interest rates, and Kaye expects the Bank of Japan to maintain an accommodative policy. He also warns against investing in Japanese banks solely based on the expectation of monetary policy changes.
Succession Issues in SMEs: Kaye highlights the challenges faced by small and medium-sized enterprises (SMEs) in Japan, particularly the lack of succession planning, with 66% of such companies lacking successors. Private equity firms and consultants are increasingly stepping in to help. However, if these issues aren't addressed, Japan risks losing valuable intellectual property.
Potential Policy Revisions: Kaye suggests that policy changes, such as easing inheritance tax rules for unlisted companies, could help address succession challenges and support the growth of SMEs, which are a vital part of Japan's economy.