Japan election preview: Polls suggest Abenomics is here to stay – HSBC

Opinion polls suggest PM Abe and his LDP will secure an absolute majority in the lower house and BoJ set to maintain an extremely easy policy as underlying price pressures weaken due to structurally low wage growth, according to analysts at HSBC.

Key Quotes

“Economics: Voters head to the polls on 22 October, with opinion polls showing Prime Minister Shinzo Abe and his Liberal Democratic Party (LDP) likely to secure at least an absolute majority, and perhaps preserve their two thirds majority. A strong showing would make it easier for the prime minister to push ahead with his economic reforms, widely known as Abenomics. For example, he has pledged to roll out a JPY2trn fiscal package to support education, to be funded by a higher rate of consumption tax scheduled to be introduced in October 2019. If the LDP and its coalition partner, Komeito, do secure a strong majority, we think the Bank of Japan (BoJ) will maintain its extremely easy monetary policy stance.” 

“FX: Politics has come into focus, but cyclical drivers will soon take over. We see USD-JPY falling to 107 by year-end and further to 100 by Q2 2018.”

“Rates: In the absence of an immediate change in BoJ’s monetary policy, JGB yields are unlikely to budge. Bond market participants’ focus remains on the central bank’s commitment to the yield curve control (YCC) policy.”