Most of East Asian weather at the moment is freezing, especially Japan where there has been lots an lots of snow over the last weekend. Take some time to warm yourself with a piping hot miso soup of news from the land sprung forth from the reeds!
First order of business: election results!
The Liberal Democratic Party of Japan (LDP) won 290 seats, relying on the Buddhist-rooted New Komeito party’s 35 seats to reach a double majority in the Kokkai (Diet). That probably means that economic revival will be in the cards and that a new mandate has been reached for that, although the lack of a complete LDP-only supermajority means that their coalition partner will look very angrily at them for any security/nationalism stance changes.
I think the current election results is a bit of a Goldilocks situation. Yes to economic reform and making Japan more dynamic, and taking the big-company gains of Abenomics and spreading them throughout the economy, which was a central issue in the election. No to free-rein nationalism that will make Japan’s trade partners very cross indeed. Also, more inside-LDP support for Abe now that his party and coalition has a more secure voter mandate (at 35% voter turnout, probably the lowest any politician has been able to draw on to claim a national mandate for anything).
Futures markets seemed to be treating this news with marginal but important negativity (Nikkei 225 below 17 000, USD/JPY below 118) until something else happened: the BOJ quarterly Tankan survey came out largely positive!
The big manufacturers diffusion index was a bit disappointing (12 vs. exp./prior 13) but big non-manufacturers were much more positive (16 vs 12 exp., 13 prior) and small manufacturers were positive (1) rather than the rather negative expectations (-3), although small non-manufacturers were negative according to expectations at -1, crimped probably from higher non-commodity input prices.
The best news however were probably an indication that capex is solidifying at a higher level, coming in at 8.9% vs prior 8.6% and expectations of 8.0%. Higher investments when input prices are largely flat or down means that there is a larger increase in productive assets than this number would otherwise indicate, and thus the forward productive capacity of Japan looks set to be much higher than others are seeing. A higher, solid level of capex could very well be the confirmation that Japan Inc. is getting behind Abenomics, and further information on any stimulus package construction and tax reform proposals will be highly, highly welcome, and I am rather convinced that the market – in light of this Tankan survey – will share my excitement!