Japan’s new Prime Minister Naoto Kan will introduce policies likely to spur economic growth and earnings, boosting stock prices, strategists at JPMorgan Chase & Co. and Deutsche Bank AG said.
Kan, who is succeeding Yukio Hatoyama, will emphasize economic growth compared with his predecessor’s focus on social issues, said Jesper Koll, head of equity research at JPMorgan Chase & Co. The new premier will also ease investor anxiety over the world’s largest public debt by implementing a more disciplined fiscal policy, said Naoki Kamiyama, Deutsche Bank AG’S chief equity strategist in Tokyo.
“After the democrats got into power and after Hatoyama got into power, the number one priority was social policies,” Koll said in a June 4 interview. “Now it’s going to be economic policy. It’s going to be to promote growth. It’s good for stocks.”
Kan, 63, who served as finance minister for five months, is taking the reins just weeks before the government is due to say how it intends to reduce public debt and release a strategy to sustain a nominal 3 percent growth rate over the next decade, a pace unseen since 1991. Japan’s public debt is approaching 200 percent of gross domestic product, the biggest among the 30- member Organization for Economic Cooperation and Development.
Japan’s corporate earnings may double and that could drive the Nikkei 225 Stock Average 15 percent to 18 percent higher, Koll said in a Bloomberg television interview today. He also said the ouster of Ichiro Ozawa as the “backroom shogun” might make Kan’s administration more stable than expected.
‘Better Than Hatoyama’
“Kan is better than Hatoyama in terms of fiscal discipline,” Kamiyama said on June 4. “When investors are thinking of long-term investment in Japan, they are wondering” whether it is a safe market, he said.
The nation’s economy grew less than forecast in the first quarter of this year as an export-led recovery failed to stoke consumer spending, a Cabinet Office report showed on May 20. Gross domestic product rose an annualized 4.9 percent, less than the 5.5 percent median forecast in a Bloomberg survey of 21 economists, the report showed.
Falling tax receipts and increasing social welfare costs helped push Japan’s debt to a record high in the fiscal year ended March. Public debt totaled 882.9 trillion yen ($9.6 trillion) as of March 31, up 4.3 percent from a year earlier, according to the Ministry of Finance.
“Fiscal discipline is important for the popularity of the DPJ,” Kamiyama said. “The policies may be good but the implementation” may be a struggle as Kan faces an upper house election in July.
Kan said that while there is no “overnight” fix, he will announce a new strategy for growth and tighter fiscal policy later this month.
“I don’t think fiscal rehabilitation can be done overnight,” Kan said on June 3. “At least I’d like to correct the trend in which the public debt keeps increasing endlessly.” The incoming premier will decide Cabinet posts and positions in the DPJ at 4 p.m. local time today, the Nikkei newspaper reported on its Web site.
Kan’s appointment comes just nine months after the DPJ ended the Liberal Democratic Party’s more than 50 years of almost unbroken control of government. The DPJ ran on a pledge to cut wasteful spending and increase household consumption. Its policies include cash payments to families with children.
The Nikkei 225 Stock Average has risen 3.1 percent since Hatoyama said on June 2 that he will step down. The gauge fell 0.1 percent June 4 after gaining as much as 0.5 percent.
Kan said on Jan. 7, his first day as finance minister, that he wanted the yen to fall “a bit more” and pledged to monitor its level. His predecessor Hirohisa Fujii said after his appointment as finance minister in September that he did not support a weak yen. The currency reached a 14-year high versus the dollar on Nov. 27 last year and has since fallen 8 percent.
“Kan is supporting a weaker yen so I think he is quite good for investors,” Kamiyama said. “His view is very different from Fujii.”
Kamiyama recommends investors buy export-related stocks such as automakers and manufacturers of consumer electronics on optimism Japan’s currency will weaken.
A depreciation in the yen raises the value of overseas revenue when repatriated, which would boost earnings growth of export dependent companies.
“You’ve got a growth strategy, and with growth you’ve got a growth of earnings which is positive for equities,” said JPMorgan’s Koll on June 4. “With Kan, you have someone who has used his time as finance minister to get up to speed on economic and finance policy. He is a man that’s a pragmatist.”