Masuzoe Win: No Panacea For Economy Despite Nuclear Boost

BMI View: With Yoichi Masuzoe's win at the Tokyo gubernatorial elections on February 9, we believe our power forecasts are well-placed for 2014, which project the restart of two nuclear power plants. Although the return of nuclear power is likely to help slow the pace of electricity price increases and the country's dwindling current account surplus, we maintain that they will be insufficient to revive the Japanese economy. Indeed, we note that the boost from expansionary fiscal and monetary stimulus is waning and there remain substantial obstacles preventing Prime Minister Shinzo Abe from implementing his liberalisation plans.

Former health minister Yoichi Masuzoe was elected as the next governor for Tokyo in the gubernatorial elections held on February 9, 2014. He had served as the Minister of Health, Labour and Welfare between 2007 and 2009, and ran in the elections as an independent candidate with the endorsement of Prime Minister Shinzo Abe and the ruling Liberal Democratic Party. Masuzoe won around 2.1mn votes according to the Tokyo Metropolitan Government website, defeating 15 other candidates including two who had promised to end nuclear power. The outgoing governor, Naoki Inose, had resigned in December 2013 over a money scandal. Although these election results are in line with our outlook for the Japanese power sector, we caution that nuclear plant restarts remain insufficient to revive the Japanese economy.

Masuzoe's Election Positive For Nuclear Power...

Electricity Prices Reaching New Highs
2011 Electricity Prices by Country, US$/MWH (LHS) and Japan Nationwide Consumer Price Index for Electricity based on 2003 prices (RHS)

BMI View: With Yoichi Masuzoe's win at the Tokyo gubernatorial elections on February 9, we believe our power forecasts are well-placed for 2014, which project the restart of two nuclear power plants. Although the return of nuclear power is likely to help slow the pace of electricity price increases and the country's dwindling current account surplus, we maintain that they will be insufficient to revive the Japanese economy. Indeed, we note that the boost from expansionary fiscal and monetary stimulus is waning and there remain substantial obstacles preventing Prime Minister Shinzo Abe from implementing his liberalisation plans.

Former health minister Yoichi Masuzoe was elected as the next governor for Tokyo in the gubernatorial elections held on February 9, 2014. He had served as the Minister of Health, Labour and Welfare between 2007 and 2009, and ran in the elections as an independent candidate with the endorsement of Prime Minister Shinzo Abe and the ruling Liberal Democratic Party. Masuzoe won around 2.1mn votes according to the Tokyo Metropolitan Government website, defeating 15 other candidates including two who had promised to end nuclear power. The outgoing governor, Naoki Inose, had resigned in December 2013 over a money scandal. Although these election results are in line with our outlook for the Japanese power sector, we caution that nuclear plant restarts remain insufficient to revive the Japanese economy.

Masuzoe's Election Positive For Nuclear Power...

We believe that the election results are a positive sign for nuclear restarts in Japan. Public sentiment towards nuclear energy has been largely negative since the Fukushima disaster in March 2011, and regular protests have been held in Tokyo and across the country demanding an end to nuclear power. In fact, Masuzoe's most prominent rival in the elections, former prime minister Morihiro Hosokawa, had made opposition to nuclear energy the core of his platform in the electoral race. Masuzoe himself had not made energy policy his main focus, instead stressing the vital importance of electricity to Tokyo while calling for a gradual reduction in nuclear dependence over the medium- to long-term. Thus, the victory of Masuzoe over Hosokawa and other anti-nuclear candidates indicates that voters in Tokyo could be more concerned with issues such as the economy, social welfare programmes, and electricity prices.

Electricity Prices Reaching New Highs
2011 Electricity Prices by Country, US$/MWH (LHS) and Japan Nationwide Consumer Price Index for Electricity based on 2003 prices (RHS)

We note that there were two candidates who had made abolishment of nuclear energy the main focus of their campaign, which could have resulted in confusion and dilution of votes from anti-nuclear voters. The two candidates, Hosokawa and human rights lawyer Kenji Utsunomiya, won around 956,000 votes and 983,000 votes respectively. While the total number of votes for anti-nuclear candidates is still lower than the votes Masuzoe garnered when combined, we note that the margin is significantly smaller, indicating that the anti-nuclear camp still holds considerable sway.

Nuclear Restarts Still Our Core View
Japan - Planned Thermal Capacity Additions And Projected Nuclear Capacity Restarts (MW)

We believe our power forecasts remain relevant at this juncture. While there are no nuclear plants in Tokyo, the prefacture remains the country's capital and the world's most populous metropolis. Policymakers are likely to conclude that voters are most concerned with bread and butter issues, and could prioritise their political ambitions accordingly. If anything, we believe that the victory by Masuzoe could help smooth the path to re-starting some of Japan's nuclear reactors, all 48 of which are currently offline for safety reviews. This poses an upside risk to our power forecasts.

Boost From Nuclear Cannot Outweigh Population Greying
Japan - Current Account, Merchandise Trade & Income Account, % of GDP

...But Presents Limited Upside For The Economy

The electoral win, however, will only provide a brief reprieve to growing political pressures on Prime Minister Shinzo Abe (see, 'Tokyo Governor Election A Challenge For Nuclear Policy', January 15). Indeed, although restarting nuclear power plants will help slow the pace at which Japan's current account is narrowing, which contracted by 31.5% year-on-year (y-o-y) in 2013 to come in at JPY3.3trn (0.7% of GDP), and limit the drag of rising energy costs on the economy, Prime Minister Abe still has to contend with huge challenges in sustaining economic growth in a greying nation. For one, the positive impact of 'Abenomics' on growth, which includes aggressive monetary and fiscal policy expansion implemented by the government and the Bank of Japan (BoJ), has begun to wear off, in line with our expectations. Q313 growth came in at a much weaker print of 1.1% quarter-on-quarter (q-o-q) annualised versus 3.5% and 4.4% recorded in Q213 and Q113, respectively.

Secondly, Abe's cabinet faces opposition from bureaucrats and business interests to the remainder of his policies within his 'third arrow', which involves the liberalisation of labour and product markets, structural changes that are urgently needed to improve the country's economic competitiveness. We maintain that without the liberalisation of Japan's markets, the rest of Abenomics is unlikely to bring about any permanent improvement in the economy, and hence, we maintain our downbeat outlook for growth, even in view of impending nuclear restarts.

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Sector: Power, Renewables
Geography: Japan
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