Japanese Prime Minister Shinzo Abe's decision to call a snap election will allow him to raise consumption tax and shows his confidence of being re-elected, according to Citywire + rated Jonathan Dobson.
Dobson, who runs the CC Japan Alpha fund, said today's annoncement was a surprise as Abe has one year left in office and his reforms were having a meaningful impact.
He told Citywire Selector: ‘The pretext for the election is to get a mandate to increase the consumption tax, the VAT, from 8% to 10% in 2019.
'He will earmark half of the extra income raised to social security, childcare and free higher education. That is the hook I think he is going to hang it on.'
The consumption tax was initially supposed to rise in October 2015, but was then pushed back to April 2017 and the tax hike has yet to be implemented. Dobson added that the market is certain that Abe will be re-elected.
‘The party that Abe represents has been in power almost interrupted since the Second World War. There was a very brief period where the opposition party was in government but they did not last very long,’ Dobson said.
‘Effectively it means that the Liberal Democratic Party (LDP) is uncontested and Abe, despite the scandal he had a couple of months ago with some spurious transactions about schools, will be re-elected with a mandate and normal service will be resumed.
Dobson downplayed the knock-on effect of the surprise vote call: 'I don't think it will affect the market at all, there is nothing for it to be affected by because probably no change is likely.'
Around 45% of voters support the LDP, while the Party of Hope, recently set up by Tokyo governor Yuriko Koike, has around 8% of the vote. Dobson believes this will have little impact as voter turnout is low.
'They have a very high level of apathy towards politics, probably because the LDP has been in power for the past 80 years. They often express displeasure about the fact there is no real change.
'There are no protests because, in true Japanese fashion, they are extremely well conditioned,' the manager said.
‘New parties are set up from time to time in Japan and they often flounder and very rarely make headway. The fact that this has been set up by the current Tokyo governor may make it more meaningful in having a recognisable public figure behind it, but the chances of them making any real headway are close to nil.'