Japanese Stock Market Anticipated Abe's Resignation... Instead, Stimulus Expectations Rise↑

Prime Minister Abe Announces Resignation Due to Health Reasons... Japanese Stock Market Slightly 'Turbulent'
"Market Uncertainty Will Not Prolong"
Abe's Approval Rating Already at Worst... Seen as an Opportunity for Renewal

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Following the announcement of Japanese Prime Minister Shinzo Abe's resignation due to health reasons the previous day, Japan's major stock indices closed sharply lower. However, this surge in volatility is expected to be short-lived. This is because a consensus had already formed that the Abe Cabinet's tenure would not be long due to failures in COVID-19 prevention measures and scandals involving close aides. Paradoxically, political turmoil is anticipated to boost expectations for economic stimulus, thereby supporting the stock market.

Japanese Stock Market Slightly Declines... But No Cause for Alarm

KB Securities made this forecast about the Japanese stock market on the 29th. After Prime Minister Abe's resignation announcement the previous day, the Nikkei 225 and TOPIX indices closed down 1.41% and 0.68%, respectively. The dollar-yen exchange rate remained steady at around 106 yen per dollar without significant fluctuations.

Following rumors of Abe's resignation, the Liberal Democratic Party (LDP) immediately began preparations for the next party leadership election. Since there is no clear frontrunner yet, competition within the LDP factions is expected to intensify, leading to increased short-term market volatility. As the LDP holds 313 of the 465 seats in the House of Representatives (including 29 seats held by coalition partner Komeito), the winner of the LDP leadership election will become the next prime minister.

However, this uncertainty is not expected to last long. Abe's resignation is not considered a major shock. Speculation about Abe stepping down began on the 17th, when he underwent an unscheduled health check during his summer vacation. Even on the 24th, when he set the record for the longest-serving prime minister, he visited the hospital again, fueling health concerns.

Previously, during his first term as prime minister in 2007, Abe resigned early due to his chronic illness, ulcerative colitis. Additionally, the Abe Cabinet recorded its lowest approval ratings during its term amid failures in COVID-19 prevention and scandals involving close aides, raising the possibility of an early dissolution of the House of Representatives. The market had already formed a consensus that Abe would not complete his term until September next year.

Rather, Expectations for Economic Stimulus... "Whether LDP or Coalition, Full Effort Will Be Made"

On the afternoon of the 8th, people carrying parasols were crossing the crosswalk in Shibuya Ward, Tokyo Metropolis, Japan. [Image source=Yonhap News]

On the contrary, political turmoil is paradoxically expected to raise hopes for economic stimulus and support the stock market. Since the Japanese economy has contracted for three consecutive quarters, public dissatisfaction with the ruling Liberal Democratic Party is high. The opposition parties, the Democratic Party for the People and the Constitutional Democratic Party, have joined forces to strengthen their influence. According to an August survey conducted by NHK, 33% of respondents supported the LDP, while those choosing 'Others' exceeded 40%.

Kim Ilhyuk, a researcher at KB Securities, said, "If the long-ruling LDP fails to create an opportunity for a rebound in approval ratings, it cannot be optimistic about winning the House of Representatives election scheduled for October next year. To overcome the crisis, the LDP will hasten to elect the next party leader and focus on regaining public support by proposing more proactive economic stimulus policies."

This influence is also expected to continue in the stock market. It is analyzed that the market will show an upward trend due to accommodative monetary policy and increased fiscal spending. Haruhiko Kuroda, Governor of the Bank of Japan, is expected to maintain the monetary easing policies implemented during Abe's tenure. Researcher Kim said, "The prolonged low interest rates by the U.S. Federal Reserve (Fed) will also support the sentiment of foreign investors. Since the effectiveness of existing policies has diminished due to Abe's long tenure, the next prime minister is highly likely to actively pursue new policies aimed at revitalizing the Japanese economy."

This content was produced with the assistance of AI translation services.