Macroscope | How one election in Japan could upend bond markets and global finance
A lower house election victory would give flight to Prime Minister Takaichi’s fiscal expansionism – and introduce upheaval far beyond Japan
Victory for Takaichi could trigger shifts in international capital flows and interest rates because of Japan’s role as a major source of global savings and investment. The general expectation is that the ruling Liberal Democratic Party, in coalition with the Japan Innovation Party, will emerge with a stronger majority than its current razor-thin margin and thus be able to implement expansionary fiscal policies, including a consumption tax cut favoured by Takaichi.
This may seem of little significance financially or politically in the global scheme of things. Yet along with Trump’s manifest desire to throw fiscal caution to the wind in the United States, it could touch off a cyclonic shift in the global capital flows that largely determine the cost of capital and levels of investment and consumption in economies well beyond Japan and the US, via financial markets.
This power has been exacerbated in recent decades by the huge and rapid growth of investment markets, fed by official schemes in Japan, Britain and elsewhere to shift household savings into stock and bond investment, resulting in huge flows of pension fund contributions into these markets.
