Sanai Takaichi, the first female prime minister in Japan's history, promises a return to "Abenomics", the policies of former Prime Minister Shinzo Abe.
Such an approach included different strategies that led to the previous success of the Japanese archipelago: public spending, investment and reforms. However, the last of those instruments has often been left behind. In the end, the country has found itself more indebted and without any real economic momentum.
In addition, those policies will be more difficult to implement today. Credit is much more expensive, and with its extraordinary public debt, the debt burden on the Japanese state is becoming very heavy. The room for manoeuvre for the country to take on even more debt is therefore reduced. The risk of even more expensive credit and a yen under pressure is very real.
However, for the moment, none of these worries the Tokyo Stock Exchange, which prefers to focus on the stimuli ahead. But this is a flash in the pan, unless the difficult and painful reforms take place.
But Japan's return to past strategies can succeed only if reforms accompany them. However, these will not be easy. We prefer to stay away and invest in other geographies. See our complete asset allocation strategy.
Stock Market Is Optimistic
The Japanese stock market welcomed the announced return of stimulus and reached new records. But at the same time, the yen lost 6% against the euro, sharply reducing the gain for the European investor.