Japan – Abe’s style drift

PM Abe’s economic strategy consists of monetary stimulus, fiscal reform and the famous structural ‘third arrow’. His achievements are paltry. And now his political priorities are shifting, having extended the Diet session through to September to amend Japan’s pacifist constitution. This leaves the Bank of Japan to do the heavy lifting. Although we expect more monetary easing, it won’t happen until next year. The impact of the current easing programme though is baked into the yen. The more immediate driver will be the faltering Asia economy. Japanese investors will repatriate cash in risk-off phases which is yen positive, particularly against regional currencies. We would be long yen against the Malaysian ringgit, Thai baht, Indonesian rupiah and Korean won. Although the best of the equity market gains have been seen, portfolio reallocation within Japan should still benefit local stocks. We maintain a long position.

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