The Japanese economy may well be getting crushed under the weight of Abenomics (courtesy of an unprecedented in history quadruple-dip recession [15]and a record number of Japanese corporate [16]bankruptcies due to the plunging Yen), but as we wrote previously, Abe has effectively hijacked the nation to his (and Paul Krugman's [17]) stock-market levitating policies and has given Japan a simple choice: either you let us see this disastrous experiment in trickle-down monetarism to its tragic end, or all your pensions are toast [18]. Not much of a choice for a population which has more retirees than any developed nation. And it's not like Japan has much a chance [19]anyway.
Which is why the outcome of tomorrow's vote for Abenomics is completely irrelevant, and which the local press, now thoroughly complicit with Abe's agenda in the aftermath of the passage of Japan's "secrecy law [20]" a few days ago - which threatens 10 years of prison time for anyone who dares to say pretty much anything that does not conform with the government propaganda: in other words, pure end-state fascism - says will "unquestionably" be won by Abe in an absolute majority.
Case in point: moments ago Japan Today reported [21]that "Heavy snow hit large swaths of Japan on Saturday, the eve of the general election, fueling speculation the ruling coalition is on course to an even easier victory thanks to low voter turnout." So the narrative becomes its own conclusion, thanks to the weather. Not even Diebold's presence will be necessary to cement the fate of Japan? Maybe the farce can be complete when Abe wins with more than 100% of the vote.
More:
It was already snowing heavily in large areas of the country along the coast of the Sea of Japan on Saturday, though Tokyo remained clear and sunny.
The Meteorological Agency warned of snowfall of up to 80 cm in central and northern regions by Sunday morning, when polls open.
The poor conditions could put off already unenthusiastic voters and push turnout to a record low for the House of Representatives election, which was called two years ahead of schedule.
Early opinion polls have shown Prime Minister Shinzo Abe’s Liberal Democratic Party-Komeito ruling coalition is likely to secure more than 300 of the 475 contested seats, giving them the supermajority it needs in the powerful Lower House to force through legislation.
The ruling camp’s predicted victory is largely thanks to an unprepared and underwhelming opposition, political pundits have said. A recent survey found just two-thirds of voters expressed any interest in the election, down from 80 percent before the December 2012 general election that saw Abe seize power.
“Abe’s expected victory is the result of the self-destruction of the opposition,” Shinichi Nishikawa, a professor of politics at Meiji University in Tokyo, said in an interview earlier in the week. “For many voters, there is no alternative but the LDP.”
Abe has billed Sunday’s election as a referendum on his pro-spending growth policy.
Good, because if it was a referendum for his treatment of the economy, as shown below..
[22]
or corporate viability as seen in this chart:
[23]
It would be an absolute disaster. In fact, if driven by simple popularity polls, however skewed, Abe would have a tough time. As the following approval/disapproval poll by the Nikkei shows, Abe's cabinet is about to have a greater disapproval rating for the first time in its history, despite the near doubling of the Nikkei in the interim period. Perhaps the collapse of the Yen's purchasing power has something to do with it?
[24]
In other words, tomorrow's (re)election of Abe will be anything but a referendum on Abe's policies, even if Abe is still expected to claim a resounding win. Still, at least on paper, there are three possible outcomes: they are shown in the chart below.
[25]
However, due to the inevitability of the win, the election is officially nothing more than more dramatic theater with a predetermined outcome: an outcome that will continue until the entire Japanese state is thorugouhly gutted. Ironically that may happen just as the Nikkei hits all time highs.
Still, for all those curious about the "official narrative" behind the election and its outcome, here is Goldman's Allison Nathan interviewing two other Goldman strategists, Naohiko Baba, Chief Japan Economist, and Kathy Matsui, Head of Japan Portfolio Strategy, who break down everything a dummy (or perhaps muppet) needs to know about tomorrow's guaranteed Abe triumph.
Why did Prime Minister Abe call an election now?
Naohiko Baba: The decision to dissolve the lower house of parliament (the Diet) and call snap elections was a very politically-motivated one, in my view. Abe had been searching for the best timing to hold elections before his current term ends in December 2016 in order to extend his term for as long as possible. He likely judged that now is the best timing for an election for several reasons.
First, it gives him a chance to reset politically and potentially leave behind recent unfavorable developments including the forced resignation of two female ministers on the back of scandals, and the administration’s failure to advance a North Korean investigation into the abductions of Japanese citizens in the 1970s and 1980s, a major source of tension between the two countries. (Japan had agreed in July to lift some sanctions on North Korea if Pyongyang reopened the investigation.)
Second, Abe’s support rating may well continue to decline as his cabinet will be expected to start tackling unpopular issues in the next Diet session beginning in January, including national security-related legislation that involves revising the interpretation of the collective self-defense clause in the constitution, the restart of nuclear reactors shut since the 2011 Fukushima disaster, and completion of the Trans-Pacific Partnership free-trade agreement.
Third, he may want to take advantage of the positive momentum generated by his popular decision to postpone the second consumption tax hike to April 2017 from October 2015, recent improvement in the employment numbers, and the rise in equity prices prompted by additional monetary easing by the BOJ and the GPIF announcement of new, higher, equity allocation targets for Japan’s pensions.
Finally, holding elections before other parties are ready to mount a strong opposition should give him the best chance of securing an absolute stable majority of seats.
Kathy Matsui: It was not an obvious decision and few had anticipated it. Typically prime ministers only call elections if they believe there is something to gain by doing so. In Abe’s case, the early elections could potentially help (a) lift his flagging support rate and (b) consolidate his support base in order to carry out his reform agenda. While this was not a riskless decision, Abe presumably felt this was an opportune moment to leverage the decision to postpone the second consumption tax hike and that a victory would give the LDP four more years to implement various initiatives.
If Abe secures his mandate as is widely believed, will his focus be on Abenomics or political issues?
Naohiko Baba: Hopefully he will push forward on both fronts – the economic and the political. But my view is that he will use the mandate and the recent relative successes of his economic agenda primarily to push forward his political agenda, such as the controversial national security issues and the nuclear restarts.
Kathy Matsui: He will need to focus on the former to achieve the latter. It is well understood that there is a growing need for Japan to participate in keeping democracy safe in the Asia-Pacific region (see our New Security Framework”). But Japan will not be able to make any contributions in this arena if its economy is stuck in recession. So while the aim will be to move forward on both the economic and security agendas, in terms of priorities, I believe that Abe knows he needs to get the economy growing first to make progress on security issues.
What many observers overlook with respect to Abenomics is that the key to sustainable economic growth is a healthier and more competitive corporate sector. The government has created an environment for firms to become more profitable: it has removed the noose of a strong yen and is cutting the corporate tax rate. As a result, companies are generating record earnings, but the challenge is how to encourage companies to deploy their cash into the real economy via higher wages, capex, etc. This is a key reason behind the government’s corporate governance and GPIF-related reforms, as it knows that a robust corporate Japan is the key to sustainable economic growth.
Would such a mandate be a good thing or a bad thing for progress on structural reforms?
Naohiko Baba: I am not sure how determined Abe and his cabinet are on the structural reform front. In his campaign pledge, he has included structural reform plans such as easing regulations in areas of agriculture, labor markets, medicine, energy, and proceeding with TPP negotiations. But that is it. My impression is that these plans are vague. So generally speaking I have not been optimistic about structural reforms and have been cautious on the economic front. And these elections are not changing my stance.
Kathy Matsui: If Abe and the LDP emerge from the election with a stronger mandate, it will be harder for the opposition both inside and outside of his party to push back on his structural reform priorities. These priorities include an overhaul of the tax system, not just corporate tax cuts, but broadening the tax base by introducing the taxpayer ID system and forcing companies that are essentially evading the system – 70% of Japanese companies don’t pay any taxes – to participate in the system by levying on the basis of revenues and not profitability; moving forward with the Trans-Pacific Partnership free trade negotiations; finalizing a Womenomics package that will force Japanese companies to disclose gender statistics, set diversity targets, and compile action plans to reach those targets; and establishing special economic zones, among other initiatives.
There is naturally a risk that Abe disappoints the market in terms of his reform agenda. But he and his cabinet know that if they delay reforms, the economic consequences are fairly clear. During the Koizumi era (2001-2006), elections were suddenly called ostensibly to secure a mandate for postal reform, but other than the beginning stages of postal privatization and forcing banks to dispose of their nonperforming loans, it quickly became apparent that the rest of the reform agenda was relatively limited. Abe understands he needs to make real and sustainable progress.
What happens politically if the LDP loses more seats than it anticipates?
Naohiko Baba: Such a loss would be very difficult for Abe personally because presidential elections within the LDP will be held in September 2015 and the more seats the LDP loses in the upcoming election, the more his chances for re-election dim. Of course, if the LDP and Komeito fail to secure a simple majority, the political ramifications would be much greater both for Abe and for the ruling coalition’s ability to push through reforms given still-powerful vested interests.
Kathy Matsui: It would jeopardize Abe’s entire agenda of economic and security reforms. However, based on various polls, the likelihood of the LDP losing the majority appears extremely low at this stage.
What asset implications might there be?
Kathy Matsui: The consensus believes the ruling coalition (LDP/Komeito) will retain its majority and recent polls suggest the coalition could retain a super-majority (at least 317 of 475 seats). While part of this is due to the LDP’s own strength, another reason is the fragile and fragmented state of the opposition. We believe the equity market’s rally in recent weeks has already discounted a ruling coalition victory, and only a resounding, landslide result might elicit a positive market reaction. On the other hand, a meaningful loss of seats would naturally be negative for the stock market.
* * *
Which, in a world in which the legacy central-planning regime only has control left over manipulated stock prices and other ledger entires in some computerized database to "boost confidence" that all is well despite what pesky reality consistently suggests is not the case, explains precisely why there will be no "meaningful loss of seats" tomorrow.
[26]
