Japanese markets and country-specific ETFs may continue to strengthen under favorable economic policies after Prime Minister Shinzo Abe’s ruling bloc secured a supermajority in Japan’s parliamentary elections.
The iShares MSCI Japan ETF (NYSEArca: EWJ), the largest Japan ETF, rose 0.4% Monday after the Sunday election.
“Prime Minister Shinzo Abe’s party scored a solid victory in Japan’s general election, likely extending the lifespan of ‘Abenomics,’ including the Bank of Japan’s mega stimulus,” according to a BlackRock note.
Public broadcaster NHK announced that Abe’s Liberal Democratic Party and its smaller coalition partner, Komeito, received at least 312 seats of the 465-seat House of Representatives, reports Adam Taylor for the Washington Post.
“This is a win for Abe,” Sheila Smith, a Japan expert at the Council on Foreign Relations, told the Washington Post, adding that the supermajority showed “a real endorsement of Abe’s leadership.”
With the country backing Abe’s party, the economy may expect an extension on the so-called Abenomics reflationary policy, which includes aggressive central bank and government policies that helped lift the Nikkei Stock Average to 22-year highs.
Related: Japan ETF Celebrates Prime Minster Abe’s Re-Election
Investors feared that if Shinzo Abe’s party failed to pull through in this election cycle, the government may enact a premature tightening of its monetary and fiscal policies, which could trigger a stronger yen currency and a return to deflation.
“The BlackRock Global Allocation Fund is overweight Japanese equities,” according to a BlackRock note. “In addition to attractive valuations, we are encouraged by the broad improvement in corporate governance of Japanese companies and the economy growing well above trend. Corporate earnings are robust and forecasts suggest they may be heading higher.”
The Tokyo equity market remains in a bullish mode, with the central bank’s tankan survey of business sentiment revealing confidence at its highest level since 1992.
The strengthening economic and corporate outlook may also attract foreign investors, especially with a clearer political outlook. Masaki Motomura, an equity strategist at Nomura in Tokyo, expects foreign investors to be buyers following the election “as they prefer steady political conditions in Japan,” according to the Financial Times.
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