A series of political scandals have rocked Shinzo Abe’s government in recent weeks, threatening to destabilise investors’ confidence in his ability to turnaround the country’s economic fortunes.
It is the first time in his current premiership that the prime minister has faced such revelations in his cabinet and this has prompted investors to question the commitment and stability of his administration.
Among those involved in the scandals were two female ministers who had been appointed by Mr Abe in September as he attempted to encourage more female participation in the country’s workforce.
Trade and industry minister Yuko Obuchi, the daughter of a former prime minister, who had been tipped to become the first female leader of the Democratic Party, stepped down over revelations about the misuse of political funds.
She was followed out of the door by justice minister Midori Matsushima, who had been accused of breaking electoral law.
In a press conference in October, Mr Abe stated: “As prime minister, I take responsibility for this and deeply apologise for this situation.”
The prime minister’s cabinet suffered a further political scandal in October when it came to light that some staff of industry minister Yoichi Miyazawa, who had only been appointed recently, had claimed expenses for money spent at an adult entertainment bar.
Wouter Sturkenboom, investment strategist at Russell Investments, suggests: “Our initial thoughts were really focused on popularity and [Mr Abe’s] ability to reform the Japanese economy.
“It’s really about the third arrow of Abenomics and we felt his ability to deliver on that arrow would – to some extent at least – be negatively impacted by these scandals.
“The political scandals in of themselves are fairly small but they are coming in rather rapidly.”
Until now it seems that a stable government in Japan has been vital in pushing through the reforms.
Even the prospect of a snap election, which was called by the prime minister in November, does not seem likely to shake voters’ belief in him.
Mr Sturkenboom agrees: “By Japanese standards he has done well and he’s maintained popularity while readying the country for change.
“A good example is the female participation rate, which has really gone up and is pushing hard to increase even further. It’s from a very low base but it’s a positive change nonetheless, which makes these political scandals – because they involve two female ministers – all the more painful as it’s one of the areas he has been pushing for improvement in.”
In the wake of these political upsets, Mr Abe’s cabinet may appear shaken, but many still retain confidence in his ability to deliver on his promise to turnaround the Japanese economy.
M&G equity analyst Rory Alexander notes: “The sentiment for change is certainly there from the government. However, the key question is how quickly change will be adopted by companies and workers.
“Rapid injection of capital is one thing, but long-term transformation of the business culture and labour practice is quite another.
“Behavioural norms that have been ingrained for decades will be difficult to uproot and [Mr] Abe will have to tread carefully in trying to ‘westernise’ practice while protecting what it is to be Japanese.”
He expects Mr Abe’s reforms will not be a “quick fix” and heralds the prime minister’s long-term approach.
“What is clear, though, is that [Mr] Abe is committed to seeing this through for the long term,” Mr Alexander continues.
“With a 68 per cent supermajority in the Lower and Upper House seats, [Mr] Abe has more support than any of the 18 previous leaders. This popularity will be pivotal in policy execution.
“If he is successful in his policy adoption, then Japan will provide a very fertile ground for investing during the longer term.”
Mr Sturkenboom questions whether the prime minister will maintain momentum in keeping the reform agenda on track and acknowledges that the political scandals have not helped in this regard.
He adds: “We still think he will push through what he promised, but perhaps it will happen just a little slower and maybe it will cost him a bit more political capital than before these things happened.”
Ellie Duncan is deputy features editor at Investment Adviser
