By Tomo Uetake and Hideyuki Sano
TOKYO (Reuters) - Japan must make progress in structural reforms to bring foreign investors back to its share market, BlackRock Japan's chief investment officer said, voicing hope Prime Minister Shinzo Abe will push this agenda after a possible election early next year.
Tad Fukushima told Reuters in an interview on Thursday that BlackRock Inc <BLK.N>, the world's biggest asset manager, is "cautiously optimistic" on Japanese shares as markets have already largely priced in likely downward revisions in earnings forecasts.
But to upgrade its view to overweight from its current neutral stance, BlackRock needs to see Abe advance his government's structural reform agenda, notably in labor market where Japan needs to do more to raise wages and close gaps between permanent and temporary workers as well as enabling firms to hire and fire workers more easily.
"For long-term foreign investors to resume buying in Japanese shares, we need to see clear fruits of Abenomics," Fukushima said.
Overseas investors bought a whopping 15 trillion yen ($145 billion) of Japanese stocks in 2013 - the first full year of Prime Minister Abe's government - but since then disappointment over the lack of structural reforms have kept them on sidelines.
"To close the perception gap between investors and the Japanese government, we will probably have to wait until after the Japan-Russia summit in December. There will probably be an election in January or February and if Abe obtains more political capitals he could step up somewhat painful reforms," Fukushima said.
Speculation is rising that Abe may call a general election if he can strike a deal with Russian President Vladimir Putin on disputed islands and a peace treaty.
"We will be looking at what Abe will do after the probable election," Fukushima said, adding that their main scenario is that there will be some progress in areas such as labor reforms.
"For instance, how much they can close the gap between regular and non-regular workers. Countries such as Germany and the Netherlands are doing better on that front... If we can see a sign that Japan is moving in that direction, that is positive," he said.
Fukushima said the market will likely be supported for now, thanks to an increase in share buybacks as well as the Bank of Japan's buying of stock ETFs.
But he added the BOJ should not increase its stock buying further from the current pace of 6 trillion yen a year, given risks to its capital.
BlackRock had $5.1 trillion in assets under management as of Sept. 30.
($1 = 103.6900 yen)
(Reporting by Tomo Uetake and Hideyuki Sano; Editing by Simon Cameron-Moore)