The positive developments in Japan’s economy and business environment, which have helped attract large amounts of investment over the past two years, could be undermined by the political turmoil resulting from Sunday’s parliamentary elections.
Although Japan’s economy is not experiencing dramatic growth, it is gradually recovering from the turmoil caused by the coronavirus pandemic. The arrival of long-awaited inflation has given the Bank of Japan room to raise interest rates for the first time in nearly 20 years.
Warren E. Buffett’s move last year to increase his holdings in Japan’s largest trading companies has prompted investors to move money away from China, which poses economic and geopolitical risks, to Japan. Japan’s corporate profits have remained strong, and government-led changes such as guidelines advising serious consideration of takeover proposals are prompting companies to take steps to strengthen their appeal to investors. .
Japanese stock prices have experienced one of the strongest gains in recent decades. The benchmark Nikkei 225 index is up nearly 50% since the beginning of 2023.
Currently, the Liberal Democratic Party, the party that has ruled Japan for all but four years since 1955, has lost its majority in the powerful House of Representatives, leaving the future government structure and economic policy direction uncertain.
“The reason why Warren Buffett and others were excited about Japan is not lost, but it needs to be in the context of a stable macro environment,” said Jesper Cole, a director at financial services firm Monex Group. “For now, the bastion of stability that has made Japan so attractive will no longer work.”
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