Money managers do not expect Japanese Prime Minister Shinzo Abe's resignation to derail the country's efforts to outgrow deflation.
Mr. Abe's resignation due to a health condition was announced Friday. He became prime minister in 2012 and has served the longest continuous term in the role.
While the Nikkei 225 reacted to the news with a 1.4% drop and the yen fell 1.2% vs. the dollar, money managers do not expect a negative impact on work by Mr. Abe to reform policy.
"PM Abe's resignation, while unfortunate, is unlikely to derail Japan's efforts to finally outgrow deflation," Neil Williams, senior economic adviser, international at Federated Hermes, said in a comment. "Virus effects provide another reason for prolonging a policy-loosening now spanning 22 years, which started long before Mr Abe's record tenure."
The country's liquidity taps are "firmly on," rates are "on the floor, and the government (is) relying ever more heavily on its central bank to now hold over one half of Japan's government bonds. Free money will continue — though, in Japan's liquidity trap, it's doubtful it will prove any different, in terms of breaking the ingrained deflationary psychology," Mr. Williams said.
Archibald Ciganer, portfolio manager for T. Rowe Price's Japanese equity fund, said in a separate comment that Mr. Abe had established political stability, enhanced the country's international presence and introduced "Abenomics" — economic and social reforms.
Mr. Abe will remain influential within Japanese politics and the Liberal Democratic Party, which is "important from a continuity perspective. We do not expect many of the positive and popular market reform aspects of Abe and the LDP's policies will be impacted or rolled back," Mr. Ciganer said. "His successor will most likely come from his closer allies within the party and will continue to move forward with the broad principles of constructive politics."
Schroders also expects continuity in both fiscal and monetary policy. Japanese corporations also "have strong balance sheets that leave them well-placed to weather a global downturn," Masaki Taketsume, fund manager on Schroders' Tokyo fund and Japan growth fund, said in a comment.
He added that Mr. Abe will remain as prime minister through the political party's leadership election and noted that a general election is due in October 2021, although the likelihood of a snap election this fall has increased in the last few weeks.