Interview
From Abenomics to Suganomics: What’s Next for Japan
- The Suga administration is expected to maintain an expansionary fiscal and monetary policy framework while pursuing strategic reforms and deregulation, including cell phone rate reductions and the potential establishment of a digital agency to dismantle bureaucratic silos.
- Growth strategies will focus on rural revitalization through the Fudusato Noze program and inbound tourism campaigns, alongside necessary consolidation of the regional bank sector to address profitability challenges.
- Corporate governance reforms are anticipated to continue with a positive trajectory, though the pace of code revisions may vary, as the market prioritizes stable execution time over the duration of leadership.
- Political risks include potential instability, the possibility of snap elections to capitalize on current support levels, and the danger that poor election results could trigger a disappointing political transition.
- Reforms proposed by the administration require more than one year for full execution, while the market outlook for 2021 relies on the assumption of vaccine development by year-end and broader distribution in the following year.
- The Nikkei is projected to have modest upside in 2021 if global growth improves, with a specific 12-month target set at 24,500, though near-term trading is expected to remain range-bound due to US political considerations and concerns regarding a potential third COVID-19 wave.
- Significant investment alpha is expected to reside in cyclical sectors beneath the index surface, specifically automobiles, insurance, machinery, and IT services, while Warren Buffett's recent trading company investments are viewed as a bet on Japan's recovery potential.