Prime Minister Fumio Kishida’s decision not to run for Liberal Democratic Party leadership in the upcoming party election and step down from his post next month has sparked some speculation about its potential impact on the stock market.
According to UBS analysts, the immediate market reaction is expected to be muted as long as the LDP remains in power, with no major ideological shifts expected.
However, UBS highlights that the nuances of fiscal and monetary policies, as well as structural reforms and energy policies under a new LDP leader, could impact market sentiment.
“There are likely to be differences in fiscal and monetary policy stances, structural reform and energy policy priorities that are likely to attract attention in the equity market,” UBS notes, suggesting investors will be closely watching the political orientations of potential successors.
The leadership transition will culminate in a LDP presidential election, likely to be held between September 20 and 29. Media reports suggest that candidates such as Shigeru Ishiba, Shinjiro Koizumi and Sanae Takaichi may be in the running, but no clear front-runner has emerged so far.
UBS also notes that if the LDP’s approval ratings improve after the election, the House of Representatives could be dissolved (as has happened in the past), paving the way for a general election in the fall.
Historically, stock prices tend to rise during the resolution and general election phases, providing a potential opportunity for investors. However, UBS warns that it remains uncertain whether a general election will boost confidence in government policies or exacerbate concerns about political instability.
Overall, UBS believes that while Kishida’s resignation raises some doubts, the overall impact on markets may depend on the new leader’s political direction and the broader political environment.