The decisive victory by Japan's Democratic Party of Japan (DPJ) in Sunday's Lower House general election will encourage a redistribution of wealth, according to Simon Somerville, manager of the Jupiter Japan Income unit trust and Jupiter Japan Select fund (Sicav).

As widely expected, the opposition won. However, Somerville says that the scale of their victory was not. The DPJ won 308 seats out of 480, i.e. a 64% majority, while the Prime Minister Aso's Liberal Democratic Party (LDP) was crushed to 119 seats, less than a quarter of the House, down from the previous 300.

Somerville commented: "The landslide victory of the DPJ reflects the Japanese electorate's dissatisfaction with the LDP and its huge appetite for 'chenji' (slang for change in Japanese). The country's long-term economic malaise and the pain of the recent global recession have finally exceeded voters' patience. Following the short tenures of Prime Ministers Abe and Fukuda, Mr Aso's term was characterised by low approval ratings and the LDP in disarray. This election result is perhaps due more to voters wanting the LDP out than to their support for the DPJ per se. With the high turnout, it also suggests that the young in particular voted for change.

"The DPJ campaigned to boost incomes and strengthen Japan's social safety net. Its stated policies revolve around redistributing money away from Japan's huge bureaucracy towards general population. Generous child allowances, the removal of tolls from motor ways and a hike in the minimum wage have all been promised. These policies should encourage consumer spending and particularly benefit specialist retailers, truckers and providers of health and education services. However, concern remains that cost cutting in the bureaucracy may not be sufficient to fund these policies and public debt may be further inflated, pushing long-term interest rates higher.

"The DPJ has also stated that it will commit to much more ambitious emissions targets than their predecessors. Japan has very many 'green' stocks from battery to solar cell and, with the growth of hybrid technology, even car makers could now be significant beneficiaries of these policies. However, many large manufacturers have criticised the targets as excessive and detrimental to Japanese competitiveness.

"In summary, I feel we are likely to see five key winners:

. Smaller companies (at the expense of large ones)
. Households (at the expense of corporates)
. The young (at the expense of the elderly)
. Politicians (at the expense of bureaucrats)
. Urban (at the expense of countryside)

"The reaction of the stock market has been relatively muted. Although the market initially rallied sharply on Monday, it then fell following the Asian sell-off. Japanese equities have already risen during August on expectation of a DPJ win. Until there is more clarification of the makeup of the new Cabinet and their immediate policy goals, scepticism is likely to remain over the ability of the DPJ to enact the changes they have promised. However, they have been given a tremendous boost with the scale of their victory. Together with the fact that they already control the Upper House, this should give them the ability to force through the much needed revitalisation policies that Japan and investors require."

Simon's two Japan funds currently remain focused on the domestic economy, which has been far more stable than the export sector, and has not suffered a financial crisis as other major markets have. Over the year to 31 July 2009, The Jupiter Japan Income unit trust has returned 2.19% against 1.84% for the sector average and 0.99% for Topix Index. Since launch in September 2005, the Fund has produced 3.58% against -11.48% for the sector average and -3.77% for the Topix Index.*

* Source: Financial Express to 31.7.09

Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM) are both authorised and regulated by the Financial Services Authority and their registered address is 1 Grosvenor Place London SW1X 7JJ. The group is collectively known as "Jupiter". The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change, and this is particularly likely during periods of rapidly changing market circumstances. They are not necessarily those of Jupiter and should not be interpreted as investment advice. Past Performance should not be seen as a guide to future returns, the value of an investment and the income from it can fall as well as rise and may be affected by exchange rate variations. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.