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Japan PM Kishida boosted by surprisingly comfortable election win

By Elaine Lies

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3/3
Japan PM Kishida boosted by surprisingly comfortable election win
© Reuters. Japan’s Prime Minister Fumio Kishida, who is also the President of the ruling Liberal Democratic Party, waves to voters from atop the campaigning bus on the last day of campaigning for the October 31 lower house election, amid the coronavirus disease (COV

2/3

By Elaine Lies

TOKYO (Reuters) – Japanese Prime Minister Fumio Kishida said on Monday he would make full use of his surprisingly strong election win as he tackles major policy decisions, including trying to pass an extra budget to accelerate the recovery from the pandemic.

Stocks surged to a one-month high on relief the Liberal Democratic Party (LDP) on Sunday held onto its single-party majority in defiance of predictions – although it did lose a handful of seats, including that of party secretary-general Akira Amari.

The results are likely to embolden Kishida, only in power a month and with little yet to show in terms of policy successes, allowing him to put his stamp on the office ahead of an upper house election next year.

“We won a majority, which I think in this election was significant,” he told reporters. “I want to make full use of this both in running the government and running parliament.”

Kishida, a soft-spoken former banker, has hewed to traditional policies of the party’s right wing, pushing to increase military spending to counter a more assertive China.

But gains made by the LDP’s dovish junior coalition partner Komeito, which increased its seats from 29 to 32, may serve to reign in some of the party’s more hawkish tendencies in this area, analysts said.

Otherwise, Kishida is likely to maintain the diplomatic policies of his predecessors, strengthening ties with key ally the United States and like-minded Asian-Pacific nations such as India and Australia through the Quad security framework.

Domestically, he has promised to address wealth inequality, touting a “new capitalism” as the world’s third-largest economy struggles to rebound from the coronavirus pandemic.

Japanese shares jumped on Monday, with the index rising more than 2% to a one-month high on hopes for a stable government and more government spending.

STABLE MAJORITY

While initial exit polls on Sunday suggested the LDP would have to rely on its junior coalition partner, Komeito, to keep a majority, the conservative party – in power for all but a few years since its founding in 1955 – instead won a solid majority on its own.

In the end, the LDP claimed 261 seats against the 276 it held before the election – an absolute stable majority that will give it control of parliamentary committees and ease passage of legislation, including key budget proposals.

A poorer showing would have heightened expectations that Kishida could follow predecessor Yoshihide Suga in becoming another short-term premier in the wake of Shinzo Abe, Japan’s longest-serving premier, who stepped down last year due to ill health.

The party did take some notable hits, including the loss by Amari, in his single-seat district, and a former economy minister and the leader of one the party’s factions, Nobuteru Ishihara, who lost to an opposition candidate in a western Tokyo district.

Analysts said the fall of such stalwarts, in contrast to the massive victories of younger lawmakers such as Taro Kono and Shinjiro Koizumi, could potentially signal a change of generations in the LDP.

“If we’re in a post-COVID and post-Abe (era), then the question is what are the new policy agendas that Japan has to face, not just in the next year or two but long-term,” said Kenneth McElwain, professor of political science, University of Tokyo.

Media reported Amari would resign his party post but there was no immediate news on a possible successor, which could have an impact on policy, particularly Kishida’s goal of trying to pull together an extra budget this year, in what would be a tight schedule.

Voters took the results in stride.

“This is pretty much as I expected, though I thought there might be a bit more of an impact from their handling of the coronavirus pandemic,” said Satoshi Tsujimoto, 53 and an office worker. He did not vote for the LDP.

Stock Markets

Morgan Stanley: bear market rally to continue

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One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.

After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.

Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.

Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”

While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.

Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.

U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.

They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.

Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”

Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.” 



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Stock Markets

Easing chip shortages to help Volkswagen in H2 – CEO

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© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo

BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.

“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.

This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.

“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.

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Stock Markets

Reliance Chairman Mukesh Ambani steps down as director of telecom arm

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© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas

BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.

Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.

India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.

Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.

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