Non-Japanese speakers do not have to worry about change in Japan so much. Basic policies of DPJ are basically same as ones of LDP, former ruling party. However, yen will be weaker while we gradually notice DPJ’s identity and policy.
I suppose non-Japanese speakers are embarrassed by change of power in Japan. As a good example, Washington Post and New York Times expressed concern about political view of Mr. Hatoyama, representative of DPJ and next Japanese PM. Their concerns do not come as a surprise. DPJ is not well known among them although Mr. Hatoyama’s view is not so strange for Japanese.
But non-Japanese speakers do not have to worry about change in Japan so much. Basic policies of DPJ are basically same as ones of LDP, former ruling party. Do not forget DPJ is mainly composed of persons from LDP, former Socialist Party and central bureaucracy. (Mr. Hatoyama himself had belonged to LDP).
Some non-Japanese might point out new policies by DPJ, such as no plan to raise consumption tax rate, cash stipend to family with child (KODOMO TEATE) and so on. No problem. Based on Macro economics, DPJ’s new policies do not change money flow in Japanese economy. The combination of no raising tax and expanding government expenditure had been adopted by LDP and will be kept by even DPJ.
Over 15 years, government expenditure has increased to cover stagnant household consumption in the Japanese economy. DPJ admits the necessity to increase in government expenditure, especially under the current economic recession. Cash stipend to family with child (KODOMO TEATE) is a good example for that. But DPJ strongly says no need to raise consumption tax rate. DPJ claims extra government expenditure is covered by cutting naff cost such as unbelievable high salary for retired bureaucrats.
Unfortunately, it is too logical to realize DPJ’s claim. Japanese bureaucrats must not go in with DPJ, because bureaucrats try to show their power to spend money more and to keep their privileges.
As no raising tax and expanding government expenditure are written in DPJ’s manifesto, DPJ would make attempts to realise it, heartily. As the results, new government would keep higher amount of JGB at least. In some instances, they might increase issuing JGB, which is basically same as LDP.
In a textbook of Economics, increase in government bond leads to higher interest rates. But no worry in Japan! Japanese household savings goes to JGB through deposit in bank, instead of expanding their consumption. It means JGB yield would be kept low or depressed lower.
FX traders of even non-Japanese speakers likely notice the next step. What would happen in lower JGB yield? Yes. Yen will be weaker while we gradually notice DPJ’s identity and policy.
*Views expressed in this paper are those of the author and do not necessarily reflect those of FXCM Japan, Inc.