Market-Roiling Kishida Sticks to Japan’s ‘New Capitalism’

(Bloomberg) — After roiling financial markets with comments on capital gains taxes and share buybacks, Japanese Prime Minister Fumio Kishida returned to parliament — and investors will be watching closely to see if he does it again.

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His opening speech Monday to a new session largely reiterated the outline of his New Capitalism policy framework, which is aimed at achieving a virtuous economic cycle through better distribution of the fruits of growth. That seems to contrast with the market focus of his former boss, Shinzo Abe, who as premier in 2013 urged an audience at the New York Stock Exchange to “buy my Abenomics.”

“There is a transformation to the economy and society under way on a historic scale, in a bid to overcome the problems wrought by the idea that everything will be fine if you leave it to the markets,” Kishida said in his policy speech. He reiterated his plans for higher wages and said he’d reconsider the legal requirement for companies to report earnings on a quarterly basis.

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His comments Monday didn’t cause many ripples in Tokyo trading but Kishida will soon face days of parliamentary questioning on his plans, and then weeks of grilling in the budget committee.

The premier, who took office in October, has found that his ideas at times can be quickly interpreted as market-unfriendly, causing declines in equity prices. At one point in the fall, the hashtag “Kishida Shock” trended on Twitter, when his comments were linked to market gyrations.

“He says straight out what he’s thinking, and that is sometimes out of tune with market perceptions, or is taken negatively,” Junichi Makino, chief economist at SMBC Nikko Securities in Tokyo, said of Kishida. The premier’s comments are a risk “in the sense that we can’t predict what he’ll say,” he said.

Amid a market mood darkened by expectations for rate increases in the U.S., “we’re in a situation where negative comments have an impact, so we have to pay attention,” Makino added.

Abe last month urged Kishida not to deviate from his own economic policies, nor to give markets the impression of a socialist slant, the Asahi newspaper reported.

Kishida’s policy platform in the September race to lead the ruling Liberal Democratic Party included a proposal to increase the tax on financial capital gains. In an Oct. 4 news conference after his victory, he referred to it as “an option.”

The Nikkei 225 Stock Average fell for eight straight days from late September, the longest losing streak since 2009. While Kishida has since said the tax policy won’t be implemented immediately, he still hasn’t ruled it out.

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In a Dec. 14 budget committee session, Kishida referred to the possibility he’d lay out guidelines to regulate corporate share buybacks, prompting the blue-chip Nikkei 225 Stock Average to briefly dip 1.2% following the comments. A pledge made by Kishida on Jan. 4 to bolster startups in Japan over the next five years failed to persuade investors, as the Tokyo Stock Exchange Mothers Index for startups slid.

For the moment, voters in general don’t seem concerned about Kishida’s effect on the stock market. A poll conducted by the Yomiuri newspaper Jan. 14-16 found support up to 66%, its highest since he took office, in line with other recent surveys from Jiji Press and national broadcaster NHK.

With an upper house election six months away, the economy and financial markets are likely to be a focus for opposition party lawmakers. Some of them are inclined to back his ideas on stocks.

“My sense is that politicians have given the players too much power to set the rules of the game,” said Takayuki Ochiai of the main opposition Constitutional Democratic Party, the lawmaker who quizzed Kishida about share buybacks in the budget committee last month. “That’s been going on for 20 years. If investors propose a change, it’s usually adopted.”

Ochiai, himself a former banker, said the CDP is likely to support a “stakeholder capitalism” approach, including priorities Kishida has already laid out, such as raising pay.

Hideo Kumano, chief economist at Dai-Ichi Life Research Institute, said Kishida’s plans on pay and bolstering startups seemed like tweaks to what had gone before, rather than new policies, concluding: “He probably doesn’t keep the stock market in mind much.”

(Updates with comment from Kishida in third paragraph.)

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