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11/16/2017 Can Japanese Stock Rally Carry Through Japans General Election?

Brent M. Eastwood
Founder @GovBrain
Oct 16 4 min read

Can Japanese Stock Rally Carry Through


Japans General Election?

Japanese Prime Minister Shinzo Abes decision to hold a snap election


on October 22 could pay o for him and for investors in Japanese
securities. Campaign trend meter data collected by GovBrain shows
that Abes ruling Liberal Democratic Party is beating back a challenge
from a new party led by the upstart, telegenic governor of Tokyo,
Yuriko Koike.

GovBrains predictive data on Japanese securities across all asset


classes nds that the bullish trend in stocks and the yen will continue to
shine with a slowdown predicted for commodities and bonds.

But rst, here is more on GovBrains analysis of Japans general


election. To track elections, GovBrain uses a patent-pending Trend
Meter inside its machine learning and arti cial intelligence system.
The GovBrain system searches data from nearly 800 government,
regulatory, and legislative sources along with political, nancial, and
technology news sites from around the world.

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11/16/2017 Can Japanese Stock Rally Carry Through Japans General Election?

Typically, Prime Minister Abes main opposition has been the Japanese
Democratic Party. But many members of the Democratic Party are now
running in di erent parties underneath the banner of Koikes Party of
Hope or the more leftist Constitutional Democratic Party led by Yukio
Edano. This has served to divide the opposition vote and give Abe the
advantage before voting begins this Sunday.

GovBrain began tracking trend data on Abes Liberal Democratic Party


and Yuriko Koikes Party of Hope on September 29. Koike herself is not
running for prime minister, but she expected her new party would
de ate Abes candidacy.

At rst the strategy appeared to work. The Party of Hope enjoyed a


strong week of trend growth from October 3 to October 10. But the
next week was di erent. From October 10 to October 16, the Party of
Hope collapsed and showed atline trend growth while the Abes
Liberal Democrats maintained consistent, if not overwhelming, trend
strength. Various polls are also predicting that Abe may have enough
support to give him a large majority in the lower house, which would
make him prime minister again, and perhaps even give his coalition a
two-thirds super majority.

GovBrain projects Party of Hope to win at least 40 seats, but Koikes


faction will be disappointed that it limped into the last week without
any momentum. The former TV news anchor was not actually running
for prime minister, she preferred staying in the background. That

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11/16/2017 Can Japanese Stock Rally Carry Through Japans General Election?

reticence may have confused voters and cost her support from
independents. Koike was also seen by some voters as not having clear
command of the issues and not giving details on her campaign
promises.

A big win for Abe should also be good for investors in Japanese
securities. GovBrain Warning, our app that can predict nancial crises,
bubbles, and geopolitical risk, sees strength in Japanese stocks and the
yen. GovBrain Warning is based on an aggregation of all our security
price predictions and sentiment analysis from the last 3.5 years. Here is
our year-to-date ratings for Japan. These ratings are based on 570
individual security price predictions this year.

Japan sentiment has been bullish across the board this year. The Nikkei
225 has risen 10.7% year-to-date and EWJ, the iShares MSCI Japan
ETF, is up 17.1% over the year.

However, GovBrains bullish sentiment for Japan has cooled over the
last 30 days. This is based on 46 individual security price predictions.

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11/16/2017 Can Japanese Stock Rally Carry Through Japans General Election?

While the Liberal Democratic Party has remained strong and has
outperformed the Party of Hope in the last two weeks, GovBrain
Warning is still highly bullish on Japanese equities during that time.
The Nikkei has been up 10 straight days and just nished at its highest
level since 1996. Meanwhile, the yen has held steady against the U.S.
dollar. GovBrain warns that Japanese bonds will be extremely bearish,
even though the Japan 10-year Treasury has rallied since September 8.

An Abe election win with a large parliamentary mandate will be


generally good for investors who have exposure to Japanese stocks and
the yen. Markets tend to favor wins by established politicians who
maintain the status quo. The fragmentation of the Japanese
Democratic Party has helped Abe as voters seemed to be
underwhelmed by the new Party of Hope and the Constitutional
Democratic Party. A strong mandate for Abe after Sundays election
should turn out well for investors.

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