ANZ Morning Brief: Same old same old in Japan

SAME OLD SAME OLD IN JAPAN .  According to exit polls the Liberal Democratic Party has won a large majority in Japan ’s parliamentary elections. The return of Shinzo Abe marks Japan ’s seventh PM in fewer than seven years. Watch for a potential increase in tensions with China as Abe has talked tough regarding the disputed islands. The LDP has governed Japan for most of the post-WW2 period until it was thrown out in 2009, and doesn’t have a great track record, overseeing decades of economic stagnation. Indeed, Abe admitted as much: “I think the results do not mean we have regained the public’s trust 100 percent. Rather, they reflect ‘no votes’ to the DPJ’s politics that stalled everything the past three years.” LDP is likely to push for more aggressive action from the Bank of Japan, as well as increased public works spending. But the basic maths shows that Japan ’s fiscal position is already past the event horizon and spinning into the black hole.

REPUBLICANS OFFER AN OLIVE BRANCH. Fiscal cliff negotiations have been painful to say the least. However, an olive branch was offered in the weekend when Republican speaker Boehner reportedly told President Obama he would be willing to countenance tax increases for those earning over $1 million a year in exchange for cuts to federal entitlement programs. It’s a step in the right direction but there is a long way to go, with Obama looking for tax rises from a $250k threshold, and Republicans demanding far greater cuts to welfare entitlements than Democrats are willing to concede.


 

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