Aberdeen cautious on Japanese election result

Investors should not expect the recent landslide election win of the LDP in Japan to boost investment prospects, according to Aberdeen Asset Management head of Japanese equities Chern-Yeh Kwok.

Kwok said that the incoming prime minister, Shinzo Abe, has campaigned for an end to deflation, with an inflation target of 2-3%, a higher consumption tax and increased public works spending. He added: “Japan has a shrinking working population. With a likely kick-up in bond yields – unhelpful when gross debt is 200% of GDP – the increasing number of pensioners, i.e. those on fixed incomes, will be worse off. It is unfashionable to say so, but persistent deflation has actually increased the value of their savings.”

Other factors to consider are the lack of structural reform and the reluctance so far of the Bank of Japan to print money. Kwok added that the individual fortunes of Japanese companies are diverging, with some exporters and domestic companies struggling while others companies, such as Canon or Japan Tobacco, are doing well. He concluded: “On a case by case basis, therefore, Japan has merit. It’s just dangerous to suppose that elections will give a lift to growth.”