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Abenomics Reset – Fidelity

Trevor Greetham, Director of Asset Allocation at Fidelity Worldwide Investment, comments on Japanese GDP and the likelihood of Abe calling new elections.

Key Quotes

“Japan’s GDP growth for 2014 Q3 came in at -1.6% annualised versus consensus expectations of +2.0%. Japan’s GDP data is notoriously volatile but in this case the big miss came from inventory liquidation which shouldn’t have been a huge surprise after the run up in inventories in Q2 and the lacklustre high frequency data in Q3.”

“We have consistently argued this year’s sales tax hike was a mistake. We see this bad news on the economy as good news for the stock market over the medium term and we are buying Japanese equities on weakness.”

“Prime Minister Abe will return from the G20 meeting with the perfect excuse for postponing the October 2015 sales tax rise and for calling snap elections to re-establish a mandate for four more years of pro-growth policy. The Abe administration’s style is to exceed expectations with announcements on multiple fronts. We wouldn’t be surprised if Abe seeks an electoral mandate for explicit monetary and fiscal expansion at least until a strong nominal growth trend is established.”

“As investors we always thought Abenomics was at its most compelling in its early days when the Three Arrows pointed in the same direction. We are back at that stage now. Monetary policy has stepped up a gear with a more aggressive phase of quantitative easing. Fiscal policy will be focused once more on boosting growth rather than tightening purse strings prematurely. A reset political mandate will give structural reform more time to take effect.”

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