Weekly international investment round up to 1 September 2009
• A political dynasty ends in Japan
• New PM pledges to put people first and tackle bureaucracy
Asia’s largest economy elected a new government this week as the disgruntled Japanese unceremoniously booted out the incumbent Liberal Democratic Party (LDP), bringing to an end their near half-century of rule.
The Democratic Party of Japan (DPJ) overwhelmingly took control of the country’s lower house promising the most radical economic reforms in a generation sparking renewed interest from those investors around the world who hold, or will now consider holding, this financial superpower within their portfolios.
Following the exit poll results Japan’s main stock market the Nikkei immediately rose to an 11 month high but on the back of a strengthening yen and weakening world stock markets it was soon brought back down to earth leading many Japanese analysts asking, ‘will this untested political party’s far-reaching reforms actually work?’
Interestingly, the leader of the DDJ and next Japanese Prime Minister, Yukio Hatoyama, has risen to power effectively promising the opposite of what his post credit-crunched economic rivals have given their electorate. In a bold yet popular political move he has laid out his plans to encourage a higher birth rate in the world’s most rapidly aging society by increasing child support, to increase the minimum wage and to abolish highway tolls while slashing government spending on infrastructure protects such as road building and public works in what could be regarded as a ‘putting the people before concrete’ revolution.
While this plan aims to inject more money directly into peoples pockets and give a much needed boost to consumer spending and stop deflationary pressures it will be interesting to see if his figures actually add up particularly as he has pledged not to increase taxes and not to trigger yet more government bond sales, the popular ploy by his ‘quantum eased’ Western counterparts.
However, what has really made investors sit-up and take notice this time is Mr Hatoyama’s promise to reform Japan’s bureaucratic practices and break up the cosy, closed-shop and mutually beneficial relationship which is considered to exist between many politicians, civil servants and powerful Japanese corporations and create what he calls ‘a horizontal society bound by human ties, not a vertically-connected society of vested interest’, a theme which has clearly struck a popular note amongst a society whose unemployment rate has just hit an all-time high last month of 5.7 per cent.
Mr Hatoyama‘s family founded the tyre giant Bridgestone and his grandfather was once a Prime Minister, armed with this inside knowledge he will know better than most the scale of the challenge which stands before him in this deeply conservative country. Holding a Ph.D. in engineering from Stanford University in America and standing true to his beliefs in fighting red tape as outlined in his 1997 book entitled ‘We Reject Bureaucrats’ Leadership’, he has set about assembling a number of seasoned politicians to help him implement reform.
In last month’s article entitled ‘The Last Samurai’, I suggested how the repercussions of the credit crunch could finally bring Japan’s long running political dynasty to an end, armed with an overwhelming tsunami of public support Mr Hatyama now needs to somehow smash through Japan’s bureaucratic concrete wall.
Mark Lamb is Head of the Life Dept. at Citadel Insurance plc which is authorised to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email: firstname.lastname@example.org Tel; 25579000. Website: www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.