Japanese politics & policy updates
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Global fund managers are scrabbling to hire political consultants in Japan to forecast the most unpredictable leadership race in decades and its effect on investment in national security assets.
The rush to secure expertise on the convoluted internecine politics of the ruling Liberal Democratic party, which was described to the Financial Times by the managers of funds based in the US, Europe and Asia, has intensified ahead of the vote to elect a leader on September 29.
Weekend polls suggested that Taro Kono, the vaccines minister and the candidate with the strongest popular support among the four contenders, may struggle to overcome the complex mathematics of factional vote-pledging.
But the outcome of the vote, said fund managers, could prove critical to the stock market and long-term perceptions of Japan’s attractiveness to foreign investors.
As one fund manager explained, Japan is more clearly affected by the global shift in policy priorities and now felt even more able to justify tougher regulation and rising government interference in markets.
The particular focus, they added, was what each candidate would do to the Foreign Exchange and Foreign Trade Act (Fefta). The law was significantly tightened in 2019 to redefine hundreds of listed Japanese companies as being of national security concern — and, some suspect, was partly designed to blunt shareholder activism.
“It’s clear that whoever of the four candidates wins, national security as an investment theme is on the table. Even the pro-market ones like [Taro] Kono will have to address this, and the concern is that the tightening of Fefta cools interest in Japan,” said Jesper Koll, a senior adviser at Wisdom Tree Investments.
The LDP leadership race was triggered this month by the resignation of Yoshihide Suga, who lasted just one year as prime minister and whose departure had been regarded by some analysts as drawing a distinct line under the market-friendly “Abenomics” era.
The use of political experts is common for leadership elections in many countries but factional power within the LDP means that the outcome of most races is usually clear well before the votes are counted.
A fund manager at a Hong Kong-based hedge fund said he was on a hunt for political consultants with inside knowledge of the power balance between the various LDP factions since the contest was too close to rely on forecasts made by investment banks.
“This is the first time where we feel the need to actually go through the process of counting which vote may come from which faction,” he said. “It almost feels like the US election.”
The LDP will choose its next leader through an electoral college, with its 383 MPs holding half of the votes and regional party officials making up the rest. If none of the four candidates secure a majority in the first round, a second round will be held on the same day where only the votes from the MPs and 47 prefectures are tallied. That means the candidate with backing from the biggest factions will probably win.
Whoever wins will become the prime minister and lead the party in a general election that must be held by the end of November.