Shinzo Abe resignation: short-lived market correction and Abenomics to continue, says from SuMi TRUST's Oshikubo

Japan

Following the announcement of Japanese Prime Minister Shinzo Abe’s resignation, Naoya Oshikubo, senior economist at SuMi TRUST, thinks that despite some short-lived market correction, Abenomics and the current monetary policy will continue on the same path when a new Prime Minister from the Liberty Democratic Party (LDP) takes the rein…

“The resignation of Japan’s Prime Minister Shinzo Abe means the end of Abenomics that has driven yen depreciation, which in turn has been a tailwind for exporters and has helped the Japanese market rally since he came to power in 2013. The announcement of his departure will likely cause a market correction in the short-term. We anticipate the lower limit of the market correction would be 22,000 for the Nikkei 255 and 1,580 pt for the TOPIX which are the 200 days moving averages and are approximately 6 per cent lower than the current levels.
 
“However, the corrections will be short-lived, and only likely to last a few weeks. Market sentiment should gradually recover as the shape of the new cabinet becomes clearer. At the moment, the ruling party, the Liberty Democratic Party (LDP), still has a majority so any new Prime Minister coming from the LDP will likely follow most of the existing Abenomics policies. We don’t foresee any significant change to monetary policy – which is one of the main agendas of Abenomics - because Haruhiko Kuroda, the current governor of the Bank of Japan, will hold his position until April 2023. We believe the current monetary easing policies and expansionary fiscal policies will continue for the duration of the COVID-19 pandemic and thus the impact on the market should be limited in the mid-to-long term.”

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