Japan: After Two Weeks of Political Shows

- MoF eventually intervened — "The MoF intervened in the FX markets after PM Kan's victory in the DPJ presidential election sent the yen higher. However, the FX intervention seems unlikely to change the recent trend in the FX markets for a long time. If Fed takes additional easing measures in months to come, downward pressures on Yen/USD will likely overwhelm the FX intervention."
- Impasse in economic policies unlikely to unravel — "Debates about imminent economic issues did not deepen during the DPJ election campaign and the basic thrust of economic policies likely will remain largely the same under new Kan Administration. Most importantly, the political decision-making will likely be dysfunctional as the ruling coalition falls short of the absolute majority in the Upper House of Parliament."
- We expect the economy to manage to maintain an uptrend — "We now expect real GDP growth of +3.2% in 2010 and +1.6% in 2011. The general trend of the Japanese economy is for slower growth as several factors which have driven activities since last year are waning: exports are decelerating, an
economic boost by the inventory cycle has run its course and reactionary moves after policy-driven strength are becoming evident. But a renewed recession is unlikely, in our view."


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