Thursday, November 14, 2024

Weak Government in Japan May Help Retail Stocks, Utilities, Tech

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(Bloomberg) — The newfound influence of opposition lawmakers in Japan has investors looking for gains in the shares of retailers and electricity generators.

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That’s due to expectations that Prime Minister Shigeru Ishiba may cut taxes to keep smaller parties on side — increasing workers’ disposable income — and because both the ruling coalition and its most likely allies want to restart more of Japan’s nuclear reactors.

The outlook for other sectors is less clear.

Defense-related shares face risks from parliamentary division over how to fund a planned increase in military spending. Investors also worry that a more fractured government will be slower to make decisions, delaying key moves like corporate governance reforms and trade negotiations with an upcoming Trump administration in the US.

“With the ruling parties now in a minority, they’ll have no choice but to coordinate with the opposition,” said Yuko Iizuka, an economist at Asset Management One. While this raises risks of parliamentary instability, the increased bargaining power of opposition lawmakers pushing for higher consumer incomes will be a positive for businesses, she said.

Ishiba was confirmed as the prime minister of a minority government in a special parliamentary vote on Monday, after his ruling Liberal Democratic Party and its coalition partner, Komeito, lost their majority for the first time since 2009 in October’s lower-house election.

AI-related stocks could see long-term upsides from Ishiba’s re-election, after he promised a ¥10 trillion ($65.1 billion) aid package for artificial intelligence and semiconductors by 2030 following Monday’s vote.

But to proceed with policies, Ishiba will have to rely on the support of like-minded opposition groups, particularly the Democratic Party for the People, which quadrupled its seats in the election on a promise to introduce tax breaks for low-income workers.

Shares of chip component maker Renesas Electronics Corp. jumped as much as 10% on Tuesday, boosted by Ishiba’s aid pledge and speculation that the company might gain market share from US rival Monolithic Power Systems Inc. Other chip-related stocks, including Tokyo Electron Ltd. and Advantest Corp., fell slightly on weak US tech shares overnight.

Japan’s broader Topix was up 0.1% as of 1:26 p.m. in Tokyo, with the Nikkei 225 down 0.7%, as stocks fluctuated on uncertainty over US and domestic politics.

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