The government's record stimulus measures should fuel a stock rally and clinch an election victory for the Liberal Democratic Party, even as it sets up the economy for a downturn next year, according to Nikko Citigroup Ltd. strategist Tsutomu Fujita.
"An economic recovery from the second half of this year will be stronger than people are expecting, but the effects are likely to be short-lived," Fujita, the No. 1 ranked strategist in Nikkei Inc. and Institutional Investor surveys this year, said at a conference sponsored by Nikko Citigroup. "An election victory will raise the prospects of a consumption tax hike, putting the stock market under pressure in late 2010."
Prime Minister Taro Aso is required to call an election for the Lower House by September, and his approval ratings have been on the rise in recent weeks in tandem with gains in stocks. The ¥27 trillion in stimulus measures proposed by the LDP-New Komeito ruling bloc will have an estimated total impact of ¥100 trillion on the economy, Fujita, 49, said. Should the market falter around the time of the election, the ruling coalition will likely introduce a supplementary stimulus plan, he said.
On May 16, Yukio Hatoyama beat out fellow Democratic Party of Japan lawmaker Katsuya Okada for the right to lead the largest opposition party. The DPJ has gained in popularity in recent years, winning control of the less powerful Upper House as the stagnating economy reduced the popularity of the LDP, which has led Japan for all but 10 months since 1955.
Hatoyama, 62, replaced Ichiro Ozawa, who resigned after a campaign-funding scandal that drove down the party's approval ratings. Hatoyama may be the best candidate to represent the DPJ as his opposition to a hike in the consumption tax provides a clear contrast to the policies of Aso, Fujita said.