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Article / 20 November 2012 at 11:36 GMT

Asian Focus: New Japanese leader perhaps but same dismal backdrop

Andrew Robinson Andrew Robinson
Market Analyst

In this video Andrew Robinson, Market Analyst for Saxo Capital Markets in Singapore, looks at the likely outcome of the recently called Japanese election and what it will mean for macro and monetary policy in Japan.

Rising opposition
The leading opposition party the Liberal Democratic Party (LDP) has 25 percent of the vote compared with the ruling Democratic Party of Japan (DPJ) which has 15 percent, according to recent opinion polls. This concerning as LDP is in favour of more aggressive monetary easing by the Bank of Japan which so far has not worked in boosting Japan’s economy.

“The problem is that simply turning on the money taps is no guarantee that you will see a turnaround in the economy,” says Andrew. “But we have a long way to go and it’s not an aggressive lead (by the LDP) and it could be quite easily eroded.”

Anti-China sentiment growing
Of particular interest is the emergence of two smaller opposition parties which are growing in popularity. Both of these parties are quite anti-China which is increasingly popular right now due to a dispute over some Japanese/Chinese islands. The dispute is so far more serious for Japan as it is negatively affecting Japanese exports to China.

“Chinese people are simply boycotting Japanese goods and that’s having quite a serious impact on the actual Japanese economy as a whole,” says Andrew. “Regardless of whoever does gain the vote it will be quite a difficult task to manage or even diffuse the sentiment that is growing within Japan to actually take this confrontation just a little bit further.”

Breath of fresh air in leadership change though not much else
Japan is up to its sixth prime minister in as many years, so a seventh is hardly likely to change that much for the economy which is struggling with low growth and deflation.

“We have seen the various parties trying to turn on the taps for the last 15 years and it is simply having no impact,” says Andrew. It will be a difficult task and there are no guarantees but maybe a different breath of fresh air might be something useful.”

Bank of Japan
As expected the BOJ’s November meeting resulted in no additional monetary easing. There is now an increasing expectation that it will act at its December meeting just four days after the election.

“It is a short enough period to prevent the newly elected politicians from being too vociferous in their policies after winning the election so that might be a good time for the BoJ to do some more stimulus,” says Andrew, adding that by that time we will have seen the final numbers for the third quarter.

Trade balance deteriorating
Japan’s October trade balance figures to be released later this week are expected to show a significant decline in exports – seen falling to 4.9 percent year-on-year versus 10.3 percent in the previous year.  Imports are also seen declining - down about 3 percent in October versus a minor positive in September.

“A general deterioration in the trade balance is expected and I can’t see anything that can really turn that around,” says Andrew.

Market impact
Although the outlook for the trade situation for Japan is clearly dismal the latest report however will have little to no impact on the yen. It is currently more affected by comments made by LDP leader Shinzo Abe ahead of the election.

“We are seeing a lot of yen weakness on the back of Abe’s stance on his monetary policy,” says Andrew. He has touted a two percent inflation target for the BoJ rather than a one percent target which is in place at the moment and he is also considering opening up a sovereign wealth fund to invest in overseas bonds which would actually require a constitutional change to allow the BoJ to do so.

“He is generally very open to easing and that is having a negative impact on the yen and I think these are the issues driving the yen at the moment rather than the trade numbers for October,” says Andrew.


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