Exit Polls Project Sweeping Victory, Supermajority For Japan"s Abe

As widely expected, Japan Prime Minister Abe"s ruling coalition is set for a sweeping victory in Sunday"s general election, and may retain the two-thirds parliamentary majority needed to revise Japan"s constitution, according to an NHK exit poll.

Shinzo Abe during an election campaign rally in Tokyo, on Oct. 21

Shortly after polls closed at 8pm, an NHK exit poll showed that Abe’s Liberal Democratic Party and coalition partner Komeito are set to win between 281 and 336 seats of the 465 total, boosting Abe"s chances of becoming Japan"s longest serving political leader: the Prime Minister needs 233 for a simple majority and 310 for a supermajority. Opposition parties are set to split the rest, with the left-leaning Constitutional Democratic Party projected to come in second. Actual results are now being counted.

NHK also projected the leftwing Constitutional Democratic party winning 44 to 67 seats, with upstart Tokyo governor Yuriko Koike’s Party of Hope taking 38 to 59 seats.

The exit polls are in line with the most recent media seat projections, shown below:

Source: Nikkei, Mainichi, Asahi, Kyodo, Goldman Sachs

The vote took place as a typhoon lashed Japan on Sunday, threatening to damp voter turnout for the election that was widely forecast to give Abe a fresh mandate to pursue economic revival and bolster the nation"s military.  Super Typhoon Lan is one of the strongest to hit Japan in years with heavy rain expected across much of the country. The Japan Meteorological Agency issued severe weather warnings for floods, wind damage and landslides. The typhoon is projected to make landfall near Tokyo on Sunday night.

A substantial win for Abe’s coalition would pave the way for more ultra-easy monetary policy and flexible fiscal stimulus that has allowed Japan - Asia’s second-biggest economy - to grow for 6 straight quarters, if only on paper. It would also give President Trump a stable partner in pushing a hardline stance against Kim Jong Un’s regime in North Korea. The LDP is due to hold a leadership election next September. If Abe runs and wins again, he could stay on as prime minister until 2021, according to Bloomberg.

Ever the opportunist, Abe called today"s election last month more than a year before parliament’s term expired, saying he wanted to test public opinion on a proposal to divert some revenue from a planned sales-tax hike to fund education and delay moves to rein in Japan’s swollen public debt. But the timing was really mostly influenced by a recent North-Korea driven uptick in his approval rating after a series of cronyism and corruption scandals hurt his popularity earlier in the year, sending his approval rating to a record low as recently as the summer.

As the FT notes, Japan’s election has been dominated by chaos among the opposition, which also helped Abe: the Constitutional Democratic Party was set up only about two weeks ago by former Chief Cabinet Secretary Yukio Edano after its predecessor split up. Other opposition lawmakers defected to populist Tokyo Governor Yuriko Koike’s upstart Party of Hope, which briefly jumped in opinion polls before fading. In his final election appearance on Saturday, Abe attacked the opposition for its time in government from 2009-12. “Just because they’ve changed their name, they can’t change that three years and three months. You can’t fool the public,” he said.

“It’s a very tough result,” Koike was quoted by Bloomberg immediately after the exit poll was released in a televised interview from Paris, where she is attending a conference on climate change. “We have to analyze the reasons properly, but I am sorry that I caused unpleasant feelings through my words and actions.”

UPDATE: Yuriko Koike, leader of Japan"s upstart Party of Hope, responds to "tough" poll projections https://t.co/DMlsMccrg0 pic.twitter.com/BHHiHqStLV

— Bloomberg (@business) October 22, 2017

In a sign of how little hope opposition parties had of defeating Abe, Koike left the country on Saturday night to attend a mayoral meeting in Paris on climate change. Even after the Democratic party had disbanded to support her, Ms Koike declined to run, leaving the opposition without a credible candidate for prime minister.

Meanwhile, almost five years into the job, Abe touted his economic record, with unemployment at less than 3 percent and the stock market at its highest level in more than two decades, both of which are largely and exclusively a function of the BOJ monetizing every piece of debt, not to mention ETF, if can find. The massive monetary easing has weakened the yen and bolstered exports while having less success at defeating deflation and boosting pay.

Abe also portrayed his party as best placed to defend Japan against the growing threat from North Korea’s missiles and nuclear bombs. His party is considering a proposal to allow Japan to have an offensive capability for the first time since World War II.

Set to become the latest Asian nation to turn to militarism, a two-thirds majority would make it easier for him to revise Japan’s pacifist constitution, a move he sees as necessary to strengthen the military. Any change would also need to pass a public referendum, and recent polls show the public divided over the issue. The ruling coalition currently controls 68% of seats in the lower house, including 288 for the LDP and 35 for its coalition partner Komeito, according to the parliamentary website.

What happens next?

According to Goldman analyst Naohiko Baba, "a big single-party majority for the LDP would afford the Abe administration stability, leaving the economic policy framework almost intact"

Baba adds that his biggest focus is whether the LDP can secure a majority on its own. If the ruling parties attain a majority but the LDP is unable to secure a single-party majority, Prime Minister Abe could come under pressure from within his party to step down in order to take responsibility, even if the LDP/Komeito coalition continued. How the election battle will unfold is anybody’s guess. However, based on exit polls, it appears the LDP is highly likely to secure far more than a majority of votes on its own.

Such a result would enhance Prime Minister Abe’s status within the LDP, highly likely enabling him to be reelected for a third term in the LDP presidential election in September 2018 and to maintain the reins of government for longer. It would also sharply reduce uncertainty surrounding economic policy as a whole since Prime Minister Abe is able to appoint the next BOJ Governor by himself when current Governor Kuroda"s term ends in April 2018.

With the election now concluded, the calendar below lists all the main political and economic events in Japan over the next four years.

Finally, here is a breakdown of the key party manifestos of Japan"s three main political parties: the LDP, the Party of Hope and the CDP:

Nouriel Roubini's "Good, Bad, & Ugly" Scenarios For The Global Economy

Authored by Nouriel Roubini via Project Syndicate,

The International Monetary Fund, which in recent years had characterized global growth as the “new mediocre,” recently upgraded its World Economic Outlook. But is the IMF right to think that the recent growth spurt will continue over the next few years, or is a temporary cyclical upswing about to be subdued by new tail risks?

For the last few years, the global economy has been oscillating between periods of acceleration (when growth is positive and strengthening) and periods of deceleration (when growth is positive but weakening). After over a year of acceleration, is the world headed toward another slowdown, or will the recovery persist?

The current upswing in growth and equity markets has been going strong since the summer of 2016. Despite a brief hiccup after the Brexit vote, the acceleration endured not just Donald Trump’s election as US president, but also the heightening policy uncertainty and geopolitical chaos that he has generated. In response to this apparent resilience, the International Monetary Fund, which in recent years had characterized global growth as the “new mediocre,” recently upgraded its World Economic Outlook.

Will the recent growth spurt continue over the next few years? Or is the world experiencing a temporary cyclical upswing that will soon be subdued by new tail risks, like those that have triggered other slowdowns in recent years? It is enough to recall the summer of 2015 and early 2016, when investor fears of a Chinese hard landing, an excessively fast exit from zero policy rates by the US Federal Reserve, a stall in US GDP growth, and low oil prices conspired to undercut growth.

One can envision three possible scenarios for the global economy in the next three years or so.

In the bullish scenario, the world’s four largest, systemically important economies – China, the eurozone, Japan, and the United States – implement structural reforms that boost potential growth and address financial vulnerabilities.

By ensuring that the cyclical upswing is associated with stronger potential and actual growth, such efforts would produce robust GDP growth, low but moderately rising inflation, and relative financial stability for many more years. US and global equity markets would reach new heights, justified by stronger fundamentals.

In the bearish scenario, the opposite happens: the world’s major economies fail to implement structural reforms that boost potential growth. Rather than using this month’s National Congress of the Communist Party as a catalyst for reform, China kicks the can down the road, continuing on a path of excessive leverage and overcapacity. The eurozone fails to achieve greater integration, while political constraints limit national policymakers’ ability to implement growth-enhancing structural reforms. And Japan remains stuck on its low-growth trajectory, as supplyside reforms and trade liberalization – the third “arrow” of Prime Minister Shinzo Abe’s economic strategy – fizzle out.

As for the US, the Trump administration, in this scenario, continues to pursue a policy approach – including a tax cut that overwhelmingly favors the rich, trade protectionism, and migration restrictions – that may well reduce potential growth. Excessive fiscal stimulus leads to runaway deficits and debt, which results in higher interest rates and a stronger dollar, further weakening growth. Trigger-happy Trump could even end up in a military conflict with North Korea – and, later, Iran – diminishing America’s economic prospects further.

In this scenario, the lack of reform in major economies will leave the cyclical upswing constrained by low trend growth. If potential growth remains low, easy monetary and credit policies could eventually lead to goods and/or asset inflation, eventually causing an economic slowdown – and possibly an outright recession and financial crisis – when asset bubbles burst or inflation rises.

The third – and, in my view, most likely – scenario lies somewhere between the first two. The cyclical upswing, in both growth and equity markets, continues for a while, driven by the remaining tailwinds. Yet, while major economies pursue some structural reforms to improve potential growth, the pace of change is much slower, and its scope more modest, than is needed to maximize potential.

In China, this muddle-through scenario means doing just enough to avoid a hard landing, but not enough to achieve a truly soft one; with financial vulnerabilities left unaddressed, distress becomes all but inevitable over time. In the eurozone, this scenario would entail only nominal progress toward greater integration, with Germany’s continued rejection of true risk-sharing or fiscal union weakening incentives for struggling member countries to undertake tough reforms. In Japan, an increasingly ineffective Abe administration would implement minimal reforms, leaving potential growth stuck below 1%.

In the US, Trump’s presidency would remain volatile and ineffective, with a growing number of Americans realizing that, despite his populist pretense, Trump is merely a plutocrat protecting the interests of the rich. Inequality rises; the middle class stagnates; wages barely grow; and consumption and growth remain anemic, at barely close to 2%.

But the risks of muddling through extend far beyond mediocre economic performance. This scenario represents not a stable equilibrium, but an unstable disequilibrium, vulnerable to economic, financial, and geopolitical shocks. When such shocks eventually emerge, the economy will be tipped into a slowdown or, if the shock is large enough, even recession and financial crisis.

In other words, if the world does simply muddle through, as seems likely, it could, within three or four years, face a more bearish outlook.

The lesson is clear: either political leaders and policymakers demonstrate the leadership needed to secure a better medium-term outlook, or downside risks will materialize before long – and do serious damage to the global economy.

Abe's Days Numbered? DB Warns Japan PM "May Be Forced Out" Leading To Spike In Yields

Almost exactly ten years ago, on September 12, 2007 Japan"s current prime minister Shinzo Abe resigned less than a year into a tenure dogged by scandals, the suicide of a minister, a raft of resignations and corruption allegations, and a humiliating election drubbing for his Liberal Democratic Party. Never one to shrink away from resposibility, Abe blamed it on crippling diarrhea:

Shinzo Abe resigned as Prime Minister, claiming that diarrhea was preventing him from carrying out his duties. The diarrhea was due to ulcerative colitis, a bowel illness caused by ulcers. Abe had suffered from this illness for decades, but after becoming Prime Minister, the stress of his job apparently made the symptoms worse.

Apparently it did not prevent him from taking on the job again some five years later, when he was reinserted in the prime ministerial position again, largely as a smokescreen meant to keep the government together as BOJ"s then-new governor Haruhiko Kuroda unleashed the greatest "wealth creation" and bond monetization experiment in the history of Japan, which has culminated with the Japanese central bank owning nearly 100% of Japan"s GDP in Japanese Government Bonds.

Unfortunately for Abe, it may be time to buy Imodium again.

As Deutsche Bank reports, following a fresh series of political scandals, the Abe cabinet"s approval ratings have kept falling and are now in the sub-40% "danger zone" and as DB"s Makoto Yamashita writes, it is now starting to look as though Prime Minister Shinzo Abe might be forced out of office until the Liberal  Democratic Party leadership race scheduled for September 2018, "in which case JGB yields might be at risk of climbing quite significantly."

Ironically, in many ways this mirrors Abe"s first fall from grace. This is what the Economist wrote some ten years ago:

"Mr Abe"s government was initially very popular. Yet the tide in Mr Abe"s affairs only ebbed. True, early on he made a notable opening towards China, with whom relations had been strained under Mr Koizumi. Other than that, Mr Abe proved unable to impose discipline upon a cabinet of the corrupt and incompetent. Worse, he had a tin ear for the political mood. Voters, it had turned out, had been beguiled more by Mr Koizumi the messenger than by his message of structural reform, which entailed pain and uncertainty, notably in Japan"s rural regions and among the old. Mr Abe failed to address these concerns."

This time around, the reason for the German bank"s dour outlook is because sub-40% approval ratings have almost invariably triggered changes of leadership around one year later over the past two decades and have always resulted in significant national election defeats.

"We will thus be watching quite closely to see whether Abe"s upcoming cabinet reshuffle proves successful in regaining the 40% level. Given that this political risk is a yen-specific factor, it should be sufficient to buy foreign bonds as a hedge against the possibility of a "risk off" decline in interest rates."

And since the financial world is far more interested in the implications of Abe"s departure on JGBs than his actual political fate, here is the background: while the BOJ has once again proved successful in curbing upward pressure on the 10y JGB yield by conducting a fixed-rate operation, it continues to buy more 5y–10y JGBs than are being issued each month and is thus likely to reduce its purchases when yields are declining. Moreover, the BOJ has this month left its offer amounts in the super-long sector unchanged (at least to this point) despite yields having climbed quite considerably. The central bank thus appears willing to tolerate steepening of the >10y curve, which may suggest that a "shock" political event like an Abe resignation may lead to an accelerated selloff off the longest-dated Japanese bonds.

As for Abe"s fate, here are the details:

Abe cabinet"s approval ratings already in dangerous territory:  the Yomiuri Shimbun reported on July 10 that the Abe cabinet"s approval rating had fallen 13%pt from its previous survey to 36%, while other polls have shown a 5%pt decline to 33% (Asahi) and a 13%pt decline to 35% (NHK). An approval rating of 40% or higher is generally considered necessary for a prime minister to remain in office. The Yomiuri Shimbun also reported a 10% decline in the Liberal Democratic Party"s approval rating to 31%, a 1%pt decline for the Democratic Party to just 6%, and a 7%pt increase for independents to 47%. Some have suggested that  Prime Minister Shinzo Abe might still be "safe" for want of opposition, but past experience indicates that might not necessarily be the case.

And, as Deutsche Bank warns, it is now beginning to look as though Abe might be forced out of office prior to the LDP leadership race scheduled for September 2018. Here"s why:

For starters, no administration since 1997 has survived for more than a year after recording sub-40% cabinet approval ratings in consecutive months, although Keizo Obuchi should probably be considered an exception given that his cabinet"s approval rating had improved from 25% initially to 40% by the time he was forced to stand down due to the abovementioned diarrhea. Only Junichiro Koizumi served out his full term, having consistently maintained approval ratings above 40%. It is possible that Abe will redeem himself with his upcoming cabinet reshuffle, but failure to regain the 40% level would almost certainly point to a change of prime minister before the end of 2018 if past experience is any guide.

Second, the next lower house election needs to be called by December 2018, and it is important to note that each upper or lower house election since 2003 contested with a sub-40% cabinet approval rating has resulted in defeat for the incumbent party (chart below), with changes of government occurring after Abe"s July 2007 upper house election defeat, Taro Aso"s August 2009 lower house defeat, and Yoshihiko Noda"s December 2012 lower house defeat. The next LDP leadership race is scheduled for September 2018, and it seems highly unlikely that party members would throw their support behind someone with a sub-40% cabinet approval ratings. The lack of unified opposition is indeed a significant difference from the past, but it is quite conceivable that independents will have combined forces to establish a new party by the end of this year or soon thereafter.

Third, Abe will struggle to proceed with his attempt to revise the Constitution if his approval rating remains so low. Even if the necessary two-thirds majority can be secured in the Diet, it is difficult to envisage 50% support in a national referendum. There does not currently appear to be any headroom to use fiscal or monetary policy to boost the government"s popularity, with the Abe administration having already compiled a roughly JPY28.1 trillion "Economic Stimulus Package for Realizing Investment for the Future" under the second FY2016 supplementary budget. Some market participants appear to believe that further pump-priming could be on the cards, but recent experience has in any case demonstrated that even that might not be enough to win back the support of voters.

Fourth, while markets may be finding it difficult to envisage a post-Abe government, Kyodo recently claimed that Foreign Minister Fumio Kishida intends to stand down around the time of the cabinet reshuffle (although we are as yet unsure as to the accuracy or veracity of this report). Kishida heads a faction thought to consist of around 46 LDP lawmakers (chart below)). This faction has its origins in the Kochi Kai launched by then Prime Minister Hayato Ikeda back in 1957, and is thought to be more dovish than Abe with regard to matters of diplomacy or the possibility of constitutional reform. Kishida is believed to have reiterated on June 28 that he remains reluctant to revise war-renouncing Article 9 of the Constitution, and Finance Minister Taro Aso might also emerge as a contender now that he is effectively heading the LDP"s  second largest faction. As a result, expect talk of a successor to Abe to heat up unless the upcoming cabinet reshuffle does prove successful in reversing recent declines in popularity.

Finally, here"s why the above matters for Japanese risk assets, from Deutsche Bank:

We have been stressing the potential for political risk to drive JPY rates higher for several weeks now, but have yet to see this possibility priced into the market. This is somewhat puzzling given that the demise of Abe would almost certain have ramifications for the BOJ (with Abe having been such a strong support of Governor Haruhiko Kuroda). The current climate of low bond market volatility thus looks likely to come to an end sooner rather than later. Weak inflation has of course helped to keep JPY rates anchored, but that might not be enough if political instability does develop into a major market theme. We will therefore be  keeping a close eye on poll results following Abe"s upcoming cabinet reshuffle. 

And for those who are seeking a pair-trade variant to a long position in govvies elsewhere, DB recommends shorting Japan dur to said rising Abe risk:

Given that this political risk is a yen-specific factor, it should be sufficient to buy foreign bonds as a hedge against the possibility of a (global) "risk off" decline in interest rates (including super-long JGB yields).

As for Abe"s life after resigning - for the second time, - we are confident he will be fine following a few unpleasant run-ins, pardon the pun, with the bathroom which will once again be scapegoated for his failures, and several Imodium prescriptions. Who knows, after Japan"s economy crashes for a few more years, we may just see the third coming of prime minister Abe to serve as the smokescreen to the BOJ one last time, which at that point will be forced to buy, well, everything to keep the market from imploding.

Japan's "Womenomics" Is Working Just As Well As Abenomics... Terribly

Via Japan Subculture Research Center,

Japan is getting serious about gender equality - and there were absolutely no bribes paid by Japan to win the right to host the 2020 Olympics - and the nuclear disaster at Fukushima is under control. Decide for yourself which of these three statements is the most untrue.

Womenomics was touted by Japan’s Prime Minister Shinzo Abe as his progressive policy to elevate the status of women in what is still a very sexist and unequal society, where women are far from being empowered. The Global Gender Gap report published last year noted that Mr. Abe and the LDP’s pledge to bridge the gender divide resulted in actually widening the gulf, with Nippon sliding down a few notches to 111th in terms of world gender equality. 

It’s hard to see women in Japan being “empowered” when they can be sexually assaulted with near impunity. The odds that their assailant will be arrested, or prosecuted are low–less than a coin toss. And if he is actually prosecuted–he can sometimes walk free, with no jail time and no criminal record,  by paying damages and saying, “I’m sorry.” It’s a situation that the Abe administration could have changed but neglected to do so, tabling newly revised criminal codes to instead focus on passing a conspiracy bill that the United Nations warns could erode civil liberties.

Of course, some would argue that “womenomics” have never been about elevating the status of women in Japan - it’s always been about keeping Japanese business thriving and hopefully encouraging woman to work - and breed. Of course, pregnancy in the workplace often is greeted with bullying from all sides. Abe’s vision of Womenomics has certainly never been about improving the lives of Japan’s single mothers, 50% of whom live in poverty. In fact, other than talking about “shining women–it’s not clear exactly what he wants for Japan’s future potential birthing machines.*

The current Minister of Gender Equality and Women’s Empowerment, is of course, also a man, and also in charge of improving Japan’s birthrate. Do we need to say more?

Yes, Japan’s Prime Minister Abe and the LDP are gungho about Gender Equality. Meet Katsunobu Kato, his home page will convince you.

Recently, Bloomberg published an interview with Democratic Party leader Renho, in which she pointed out the obvious, Womenomics is all talk and no walk.

“They should be ashamed to use the word ‘Womenomics’,” Democratic Party leader Renho, the 49-year-old mother of twins, said in an interview in Tokyo late Thursday when asked about the term Abe often uses to describe his efforts. “It’s an embarrassment.”

Abe had vowed to eliminate waiting lists for childcare in a bid to draw more women into the workforce to make up for Japan’s shrinking population. He also sought to have women take 30 percent of management positions in all fields by 2020.

On both goals he’s falling well short: Japan was 111th in the World Economic Forum’s Gender Gap ranking for 2016, down 10 places on the previous year.

“About 80 percent of those who take childcare leave are women, and if they’re forced to wait for daycare, that means unemployment,” Renho said.

“You either get demoted or you give up on work. What’s womenomics about if women are being forced to make such sad choices?”

For the rest of the article, go to

Abe’s Policies Failing Women, Japan Opposition Chief Says

*Reference to women as “birthing machines” is sarcasm. We know that the LDP also thinks of women as much more than that–as potential nurses for the elderly, expert green tea brewers for the office, and caretakers of the children that they should be giving birth to right now for the greater prosperity of Japan."