Japan - Kan will need to “prove his mettle”

Naoto Kan's appointment as Japanese Prime Minister last week has so far prompted a fairly balanced reaction. However, Jamie Jenkins, Head of Japanese Equities at F&C, believes this is good news.

"I'm confident that Kan's appointment is a definite step in the right direction. He has already gone on record with a more fiscally aggressive stance on bringing Japan's huge public debt under control and has made all the right diplomatic policy noises, such as strengthening relationships with the US and China. Whilst it is early days, Kan has never been afraid to take strong viewpoints in the past and for the moment I'm happy to give him the benefit of the doubt," Jenkins commented.

Today saw the annualised rate of first quarter GDP for Japan revised up from 4.2% to 5.0%. Jenkins believes that exports have been the clear driver, and that this strength has started to broaden out to the rest of the economy with encouraging upgrades for consumption and housing. Yet exports look set to slow from here, as global leading indicators now appear to be rolling over, and Jenkins believes that Kan, as new Prime Minister, has a fairly small window of opportunity to prove his mettle to a frustrated electorate, before this slowdown in exports begins to exert stress on the domestic economic revival.

The F&C Japan Equity Team have used the recent sell-off in markets as an opportunity to add to a number of their key investments. However, over the longer term, Jenkins has significant concerns about how governments globally will deal with their substantial fiscal imbalances and what this implies for global growth looking into 2011.

"Given the uncertain outlook, the one thing we can guarantee is continued market volatility, which we will look to exploit with our high-conviction stockpicking approach," Jenkins concluded.