Forex Flash: Political landscape altered in Japan – RBS

Share | (Barcelona) - The political situation in Japan has changed dramatically last week. An agreement on deficit financing bills between the ruling Democratic Party of Japan (DPJ) and the Liberal Democratic Party ( LDP ) was finally reached, ensuring that the situation did not reach a crisis point where all deliberations in the Diet got suspended. According to Junko Nishioka, Chief Economist at RBS, "Before the DPJ's party leadership conference on 14 November 2012, it was widely thought that the Diet would be dissolved by the year end at the earliest."

However, the situation changed once Prime Minister Yoshihiko Noda announced at the conference that the Diet would be dissolved on 16 November and it became more apparent the DPJ is unlikely to retain its majority in the Lower House. According to the official announcement, the public notification of the general election will happen on 4 December and voting is scheduled for 16 December.

"The worst seems to be already behind us, but we think the political situation is still fragile and carries the risk of the announced political calendar falling behind. The key point for now is whether any new administration will be able to introduce economic measures in the FY12 supplementary budget in order to boost business activities in 1H2013. If there are delays, the economy could become more vulnerable and it will be even more difficult to implement the consumption tax hike agreed upon by the ruling and opposition parties." Nishioka warns.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Forex and Currencies

Referenced Stocks: LDP

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