Japan’s Abe’s gamble to call snap elections shortly after the stunning defeat in the Tokyo elections appears likely to pay-off. He called the bluff of his former defense minister and now Governor of Tokyo Koike who is leading the main opposition party now, the Party of Hope. The Party of Hope may have over-reached and now appears to be stumbling. The polls suggest that the LDP may secure more seats in the lower chamber than it a current hold.  

Even though the LDP may not need to be in a coalition, it still seems likely that the junior coalition partner, the Komieto Party, will remain in government, even if it loses a few seats. In other countries, this may not be the case, but in Japan, a coalition is helpful in demonstrating the consensus nature of policy and soften the image of the LDP, which has largely governed Japan with only a few exceptions for more more than 60 years.  

Recall that when Abe was first elected, Abenomics was presented as three arrows. Fiscal stimulus, monetary stimulus, and structural reform. The first two are tangible. The third is more elusive. It is more elusive not because it is less real or developed, but because the structural reforms are more numerous and may deny an easy soundbite to capture imaginations, the way that greater public investment or quantitative and qualitative easing and targeting yields are easily grasped.  

Among the unsung efforts is are corporate governance reform. Recent news of Kobe Steel falsification of the strength of several of its products, used in auto and airplanes, and Nissan’s decision to shut all of its domestic output for the next two weeks as it rebuilds its inspection operations illustrate to many the ongoing needs for greater efforts. Still, these issues seem to involved fraud, which is illegal even before Abenomics.  

The key institution to watch for corporate reforms is the Financial Services Agency (FSA). It met earlier today. It continued to develop the stewardship, and corporate governance codes and the changes announced a few months ago, regarding asset managers, including disclosure of shareholder specific voting records, and strengthening stewardship of asset owners (including GPIF). What caught our attention were new issues that the FSA identified.