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Abe dissolves parliament, calls snap election - Fidelity

FXStreet (Barcelona) - Trevor Greetham, Director of Asset Allocation at Fidelity Worldwide Investment, comments on Prime Minister Shinzo Abe’s decision to call a snap election and a delay in the sales tax hike.

Key Quotes

“Abe has dissolved parliament and called snap elections he is certain to win (LDP support 39% vs closest rival DPJ at 9.7%). He has delayed the sales tax hike 18 months and will table further fiscal stimulus. This is positive for growth and supports the overweight position in Japanese equities we added to on weakness yesterday.”

“We see its delay as good news for the economy and good news for the stock market over the medium term.”

“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.”

“Fears of fiscal abandon may be allayed by Abe’s continued commitment to get to fiscal surplus in 2020. He also pledged not to delay the sales tax hike a second time and this does make his government a hostage to fortune if the world (and domestic) economy isn’t playing ball at that time.”

“We are overweight Japanese equities in our multi asset funds. The market can be volatile but new asset allocation targets mean government pension funds will be buying equities as opportunities arise and this should limit downside. Currency weakness is part of the story so we favour hedged exposure and we are outright short the yen where this is possible.”

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