The Abe cabinet’s approval ratings have kept falling and are now in the sub-40% “danger zone”. It is now starting to look as though Prime Minister Shinzo Abe might be forced out of office until the Liberal Democratic Party leadership race scheduled for September…
Almost exactly ten years ago, on September 12,2007 Japan’s current prime minister Shinzo Abe resigned less than a year into a tenure dogged by scandals, the suicide of a minister, a raft of resignations and corruption allegations, and a humiliating election drubbing for his Liberal Democratic Party. Never one to shrink away from resposibility, Abe blamed it on crippling diarrhea:
Shinzo Abe resigned as Prime Minister, claiming that diarrhea was preventing him from carrying out his duties. The diarrhea was due to ulcerative colitis, a bowel illness caused by ulcers. Abe had suffered from this illness for decades, but after becoming Prime Minister, the stress of his job apparently made the symptoms worse.
Apparently it did not prevent him from taking on the job again some five years later, when he was reinserted in the prime ministerial position again, largely as a smokescreen meant to keep the government together as BOJ’s then-new governor Haruhiko Kuroda unleashed the greatest “wealth creation” and bond monetization experiment in the history of Japan, which has culminated with the Japanese central bank owning nearly 100% of Japan’s GDP in Japanese Government Bonds.
Unfortunately for Abe, it may be time to buy Imodium again.
As Deutsche Bank reports, following a fresh series of political scandals, the Abe cabinet’s approval ratings have kept falling and are now in the sub-40% “danger zone” and as DB’s Makoto Yamashita writes, it is now starting to look as though Prime Minister Shinzo Abe might be forced out of office until the Liberal Democratic Party leadership race scheduled for September 2018, “in which case JGB yields might be at risk of climbing quite significantly.”
Ironically, in many ways this mirrors Abe’s first fall from grace. This is what the Economist wrote some ten years ago:
“Mr Abe’s government was initially very popular. Yet the tide in Mr Abe’s affairs only ebbed. True, early on he made a notable opening towards China, with whom relations had been strained under Mr Koizumi. Other than that, Mr Abe proved unable to impose discipline upon a cabinet of the corrupt and incompetent. Worse, he had a tin ear for the political mood. Voters, it had turned out, had been beguiled more by Mr Koizumi the messenger than by his message of structural reform, which entailed pain and uncertainty, notably in Japan’s rural regions and among the old. Mr Abe failed to address these concerns.”
This time around, the reason for the German bank’s dour outlook is because sub-40% approval ratings have almost invariably triggered changes of leadership around one year later over the past two decades and have always resulted in significant national election defeats.
” We will thus be watching quite closely to see whether Abe’s upcoming cabinet reshuffle proves successful in regaining the 40% level. Given that this political risk is a yen-specific factor, it should be sufficient to buy foreign bonds as a hedge against the possibility of a “risk off” decline in interest rates.”
And since the financial world is far more interested in the implications of Abe’s departure on JGBs than his actual political fate, here is the background: while the BOJ has once again proved successful in curbing upward pressure on the 10y JGB yield by conducting a fixed-rate operation, it continues to buy more 5y–10y JGBs than are being issued each month and is thus likely to reduce its purchases when yields are declining. Moreover, the BOJ has this month left its offer amounts in the super-long sector unchanged (at least to this point) despite yields having climbed quite considerably.
