New PM For Japan But Little Change In Sight

Paul Chesson, head of Japanese equities at Invesco Perpetual, comments on Yoshihiko Noda becoming Japan’s new Prime Minister

“Former Finance Minister Yoshihiko Noda’s election as head of the Democratic Party of Japan (DPJ) and subsequent Diet approval as Prime Minister is unlikely to have a significant impact on the  equity market in our view.

“As Finance Minister, Mr Noda worked closely with the Bank of Japan. This included recent intervention in currency markets to help weaken the yen. While Mr Noda is fiscally conservative, arguing in favour of tax rises to help pay for reconstruction efforts and to reduce Japan’s significant sovereign debt, we believe he is unlikely to advocate plans radically different to those suggested under previous Prime Minister Kan.

“Mr Noda appears to be in favour of greater co-operation with Japan’s opposition parties, but gaining a consensus may prove challenging particularly as there remains some divergence within the DPJ itself. As such, the smooth passage of legislation on key issues, such as the reconstruction of East Japan, the third supplementary budget and tax rises, may still be difficult to achieve.

“In our view, the likelihood of real political change is limited, with fundamental factors, such as valuations, earnings and the growth outlook, both domestically and globally, remaining the most important factors in determining the future direction of Japanese equities.”