Japan’s Benny Hill

Today, Prime Minister of Japan, Shinzo Abe, announced his resignation at an emergency press conference after just one (largely disastrous) year in office.

Fraught with scandal, gaffes, and general embarrassment, the end of Abe's reign was more like watching comedian Benny Hill shuffle around the stage as the credits rolled to a particularly uproarious episode of his comedy specials than the dignified exit of a world leader. (For those who don't know Benny Hill: https://en.wikipedia.org/wiki/Benny_Hill.)

Though the press described Abe's resignation as "sudden" and "surprising," neither Japanese nor world markets reacted much to the news. It's doubtful any of this will radically alter the near-term economic outlook for Japan, which should still benefit from its sensitivity to global GDP growth and strong capital expenditure trends.

Prime ministers flip pretty often in Japan. In fact, Abe was Japan's tenth prime minister since 1990. In the US we're used to rigid four year terms and relative stability in our leaders' tenures, but Japan, Italy and other parliamentary systems feature fairly frequent yet irregular changes.

Abe steadfastly remained in office following a number of scandals within his cabinet, a fiasco related to the loss of pension records, and his party's crushing defeat in upper house elections earlier this summer. Abe's perpetual blunders were endearing at times—we knew he had a free market reformer's heart. But after one too many mistakes, eventually the adoring masses will turn on even the best comedy routines:

Why Did the British Disown Benny Hill?
By Jemima Lewis, The Independent
https://comment.independent.co.uk/commentators/article620206.ece

Sayonara, Abe
By Editorial Staff, The Wall Street Journal
https://online.wsj.com/article/SB118961679836725297.html?mod=googlenews_wsj

(Ok, enough with the Benny Hill comparisons.)

Abe said he resigned due to lack of public trust, making it difficult for him to secure an extension of Japan's anti-terrorism mission in the Indian Ocean. To step down over this particular issue may seem baffling given past scandals Abe survived, but we think this was just the straw that broke the camel's back. Here's a recounting of one tumultuous year:

Chronology of Abe's Rise and Fall
By Associated Press

We've written extensively in this space about Abe's troubles and what it means for global stock markets (remember Japan is the world's 2nd largest economy). See these past commentaries for more:

• Is the LDP DOA? (7/30/07)
• Abe on the Outs? (6/25/07)

Abe's Liberal Democratic Party (LDP) is set to hold an election within its ranks to choose a successor on September 19th. For now, Abe refused to comment on who would succeed him as LDP president but indicated the entire cabinet will resign after the new party chief is elected.

Abe's resignation is without question a victory for the rival Democratic Party of Japan (DPJ), which favors less free market reform and more government intervention like agricultural subsidies—which we view as negative. The DPJ will undoubtedly put pressure on the LDP to dissolve the lower house and call a general election, but it's too soon to tell.

On the positive side, Abe's self-dismissal will likely cause political gridlock in Japan for some months to come—almost always a good thing for stocks. The news may even push the issue of a new consumption tax onto the backburner. Either way, Abe's reform agenda is likely to die on the vine.

If you can't keep ‘em laughing, it's high time to get off the stage, and Abe's cheers turned to jeers some months ago.