As Trump finishes his five country Asia tour, we take a closer look at one of his allies in the region Japan. Japanese Prime Minister Sinzo Abe recorded a landslide victory in the election held at the end of October and he retains his supermajority in the lower house, even with his personal ratings languishing and remaining low. Abe ran into trouble earlier this year after being caught up in two cronyism scandals, appointing friends to positions of power without proper regard to the qualifications. However his rhetoric and tough stance on North Korea and possibly reforming the ultra-pacifist constitution gathered strong support amongst his followers.
The snap election was called over a year early and some have questioned why he felt the need to call the election, but it appears his risk has paid off. Abe is facing pressure from some of his aides to replace current Bank of Japan governor, Haruhiko Kuroda, when his term ends in April. Although the advisor in question, Etsuro Honda himself has ambitions to become BoJ governor but in a recent poll Kuroda ranked clear favourite to retain the role and Honda ranked fifth.
National CPI data at the beginning of the week showed the plight that the Japanese economy is in printing a core figure, which includes energy but not fresh food, of 0.7%. Kuroda conceded in his speech that inflation remains “relatively weak” but he expects the labour market to start putting pressure on firm’s future prices. The labour market is the tightest it’s been in decades with around 1.5 job openings per job seeker; Kuroda hopes this will put pressure on firms to raise wages to keep valuable staff which in turn will mean higher levels of spending in a country which has a persistent mind set and expectation that prices will not rise.
The future of the BoJ’s policy outlook is at odds with other major Central banks especially the Federal Reserve who are already unwinding their balance sheet. Mario Draghi, European Central Bank President announced that their QE buying pace will half in January but the length of the program will be extended, in a small show of confidence in the Eurozone’s recovery. The UK is an exception to the rule with Brexit sitting firmly in front of Carney and the MPC there is little expectation of a slowdown in QE and only two rate rises expected over the three years.