A Kan victory and the risk of a yen stuck at ¥70-¥80

- Kan has the edge — "The media is reporting that PM Naoto Kan has a lead over opposing candidate Ichiro Ozawa in the DPJ leadership election. This writer also thinks Mr. Kan has the edge. However, Mr. Ozawa also has a chance of winning. We forecast a weaker yen and stronger share prices if Mr. Ozawa wins."
- If Mr. Kan wins — "We think this would be neutral or negative for share prices. We would not expect any big changes in the economy-related posts such as the Minister of Finance, the Chief Cabinet Secretary, or the State Minister for Economic and Fiscal Policy in the post-election cabinet. We would thus expect barely any change in basic economic policy."
- Little hope of additional monetary easing — "The BoJ has taken steps to ease monetary policy. Miyako Suda, a member of the policy board, was said to have been against this, on the grounds that it would heighten the risk of creating a breeding ground for bubbles in the long run. We note the gulf between her perception and the market."
- Risk of yen strength after the leadership election — "Our greatest concern is of rapid yen strengthening after a victory for Mr. Kan in the September 14 leadership election. With the government having already played its hand on monetary and fiscal policy, it is unlikely to come up with effective measures on the strong yen."
- Continued outperformance by domestic-demand stocks near term — "We expect stocks that benefit from low interest rates and deregulation to continue to outperform. We anticipate additional deregulation measures for real estate, tourism and other areas to be incorporated into the government’s economic steps that will be unveiled this week."
- Stocks to watch — "Sumitomo Realty & Development (+6.1% versus TOPIX YTD through September 8), Tokyu Real Estate (+8.6%), in real estate, All Nippon Airways (+37.3%) and East Japan Railway (+23.7%) in tourism, and SoftBank (+21.6%) and Dwango (+7.8%) in IT."


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