Japan has a few interesting things to look into today, when we got great overtime pay numbers, showing that overtime pay just increased by 0.4% over the 1.6% prior value. This is a great leading economic indicator as it indicates just how much managers are squeezing people on a short-term basis, and might contribute to the long-term hiring picture when more work comes in that is not possible to delegate to short-term increases in overtime pay.
That, as much as I would like to deal with it now, is for later. At the moment, let’s get you up to speed on the Japanese election campaign, which officially kicks off today. The economy is seen as the most important election matter (of course, stupid!), which probably means that the capital expenditure numbers we got yesterday really helps the outlook for Abe Shinzo, not just the economy. In fact, the third quarter GDP will be revised from -1.6% to -0.6% on the back of this data alone, and for many reasons this data is possibly one of the best leading indicators. I will go into more analysis of this later as well, when I discuss the overtime pay picture.
What then does the election battleground look like, and what are the likely different outcome scenarios for the LDP and New Komeito coalition that currently rules Japan? Bloomberg has a pretty good summary of this as well, which I won’t go into greater detail on, except to discuss which outcome I see as the most positive for Japan.
Having a supermajority of more than 317 seats out of 475 would mean that the LDP could really push through essentially any legislation it wants across all chambers of the Diet, including controversial and disliked foreign policy stances. I think this is really harmful for Japan, and one of the best ways for the country to grow would be to hitch a ride on Chinese growth and exchange know-how for profit opportunities in China. China could replicate the technology, but I have a hard time seeing how it could ever replicate Japanese diligence, management and dedication to results, so Japan will still keep its unique selling points or even extend them. From this perspective, you’ve already done good things to make the likelihood of Asian Majors’ trade and investments better, why risk it by bulking up your military and sounding all nationalistic again?
However, as the Japanese political establishment is essentially dysfunctional at all times, a Kokkai (Japanese word for Diet) legislature ruled without an absolute stable majority of 266 seats would be a complete loss of any reform potential. Getting the ruling coalition less than 266 seats would imply a lot of horse trading, and essentially the third arrow of Abenomics remaining in the quiver, never getting shot out. I do believe that the closer the LDP gets to 300 seats, the better (as the mandate would be stronger) but anything over 316 seats would be to more or less ask for a halt of shipments to the biggest export market Japan has.
Perversely, as is mentioned in the Bloomberg article, the less voter turnout, the better for the LDP in results. This probably explains why the short notice, since drumming up a proper election campaign and drawing up significant battle lines over questions the Japanese care about deeply (aside from the economy) would probably hurt the LDP prospects.