When it comes to politics, the Japanese like to say that a few steps ahead all is darkness. Just six months ago, Shinzo Abe scored yet another landslide electoral victory and seemed certain to stay in office until 2021, thus becoming Japan's longest serving prime minister. Suddenly, all bets are off.
A seemingly endless series of petty scandals has led to a sharp decline in Abe's approval rate and no less a person than former Prime Minister Junichiro Koizumi, Abe's erstwhile mentor, is predicting that a "loss of trust" will lead to Abe resigning sooner rather than later. Certainly, the autumn's internal party election for leader of the Liberal Democratic Party — and thus prime minister — will no longer be a walkover.
The question for investors is how much this matters. Has Abe changed the game permanently as Margaret Thatcher did in Britain during the 1980s, or could Japan slide back into a deflationary funk and another lost decade?
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