Japanese investors will be hoping Prime Minister Shinzo Abe repeats last year’s history-defying performance by spurring stock gains that are sustained well after July 21’s upper house elections.
The CHART OF THE DAY shows the Topix index of Japanese shares rose in 14 of the 20 months immediately prior to all parliamentary elections -- lower and upper house -- dating back to 1980, according to data compiled by Bloomberg. The lower panel shows it dropped 1 percent on average after votes, declining following eight of the past 10 ballots. The 11 percent surge after Abe’s December victory surpassed all other post-election performances.
“In the past, pork-barreling and anticipation for the new administration have pushed stocks higher in the run-up to the elections,” said Yuji Saito, the director of foreign-exchange at Credit Agricole SA in Tokyo. “This time, there are high hopes that the government will be able to put in place key growth policies such as the corporate tax cut by resolving the hung parliament, and that will accelerate stock gains and yen depreciation.”
An Asahi survey conducted June 29-30 showed that Abe’s Liberal Democratic Party may win 44 percent of votes in the upper-house ballot, while the three main opposition parties would each get less than 10 percent. That raises the prospect Abe will be able to work with a coalition partner to get legislation through the chamber after it blocked efforts to change welfare programs and electricity markets.
The Topix climbed 6.6 percent one month before Abe’s LDP took power in a general election in December by pledging to fire “three arrows” to end deflation: monetary stimulus, fiscal spending and a growth strategy to increase investment and hiring. The Japanese equity gauge extended those gains the following month and reached an almost five-year high of 1,289.77 on May 23. That was the first time since 2005 that the after-election stock rally exceeded advances before the vote.
The Japanese currency, which closed at 101.20 per dollar on July 5, may break below the 4 1/2-year low of 103.74 reached May 22 should Abe succeed pushing through regulatory reforms, according to Saito. Options show about a 30 percent chance the yen will be weaker than its May low on Aug. 21.