Japan's new prime minister -- Wait and see
September 27, 2006

Shinzo Abe was elected prime minister of Japan on Tuesday, succeeding the popular and successful Junichiro Koizumi. Abe will move slightly away from Japan’s historical strong reliance on its relationship with the U.S. by:

• Replacing the U.S.-drafted Constitution with one that allows Japan the right to use military means to settle international disputes,
• Strengthening his decision-making powers on defense and foreign affairs,
• Improving relations with Asian neighbors, especially China,
• Seeking permanent membership on the U.N. Security Council,
• Adding more patriotic messages in Japan elementary education.

What it Means:
Abe is the youngest elected Prime Minister since World War II. His popularity stems from his close relationship with the popular Koizumi, his telegenic appeal to mass audiences, his longtime strong stance against nuclear proliferation in North Korea, and his appeal to Japanese nationalism.

Of concern is his relatively weaker emphasis on Japan’s economy. Although it is recovering, it still needs strong guidance to steer it out of deflation.

Japan’s people feel that having the world’s second largest economy authorizes them to take their rightful place in the world’s leadership. Despite their centuries-old hostility towards the Chinese, they recognize that business must come first, and that the world’s power is shifting from the U.S. to China. Therefore, they are willing to bury the hatchet in a joint effort to defend themselves from North Korea, and enjoy the growing economic strength of the Southeast Asia region.

Action Steps:
Overall, Abe’s election should be good for the Southeast Asian economy. If you have Japan-related sector funds, keep them.

However, if you don't currently have these funds, wait for a few months to see if Abe can successfully guide the Japanese economy out of deflation.

Source: China People’s Daily Online,