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Japanese stocks will do well under new PM Suga if history is a guide

Bloomberg
Bloomberg • 3 min read
Japanese stocks will do well under new PM Suga if history is a guide
No modern Japanese leader taking over from a long-serving premier has seen stocks fall on their watch.
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A new leader taking over from a long-term incumbent can often make investors skittish. Yet as Yoshihide Suga settles in as prime minister of Japan, market participants can take solace in one fact -- no modern Japanese leader taking over from a long-serving premier has seen stocks fall on their watch.

Every successor to a Japanese leader who has been in office for around five years or more has lasted at least a year in office, and local stocks have risen during each of those terms, according to data compiled by Mizuho Securities.

Granted, the data set is small. Japan’s political system tends not to lend itself to long terms in office, with the average incumbency for post-occupation leaders just over two years. Before Shinzo Abe, whose record term in office ended Wednesday, only four premiers among the 30 leaders had lasted about five years or more.

Katsuhiko Nakamura, a market strategist at Mizuho Securities Co. in Tokyo, identifies two trends for such occasions: first, long terms in office are a positive for Japanese equities. Second, stocks always rise for the successors to the lengthy tenures.

“Suga talks of a ‘succession’” to the policies of Abe, Nakamura said. “Bank of Japan Governor Haruhiko Kuroda likely won’t be stepping down, and on political front there will be no reason for overseas investors to sell.”

The four leaders who lasted about five years or more are arguably the most storied premiers of Japan. From Shigeru Yoshida, the grandfather of current Finance Minister Taro Aso who signed the San Francisco Peace Treaty, to Eisaku Sato, Abe’s granduncle; Yasuhiro Nakasone, who oversaw the economic bubble years, and the maverick reformer Junichiro Koizumi.

Their replacements -- Ichiro Hatoyama, Kakuei Tanaka, Noboru Takeshita, and Abe himself during his first period of power -- all ended up being heavyweights within Japanese politics themselves. And Japanese equities rose an annualized 3% to 30% during their years in power, Mizuho’s Nakamura said.

Dai-ichi Life Research Institute’s Chief Economist Yoshikiyo Shimamine sees long-serving Japanese administrations becoming stagnated in the second-half of their terms, shifting the focus back onto the economy for their successors, as one of the reasons for the outperformance.

He expects Japanese stocks to do well if Suga can implement a growth strategy based around his mooted digital agency. The policy is expected to be one of the highlights of Suga’s administration, along with structural reform and deregulation, policies to boost regional economics and reducing mobile phone bills.

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