With the return to power of the Liberal Democratic Party the yen has weakened sharply and the Nikkei has strengthened on the belief that the incoming government will push the Bank of Japan into greater monetary easing and further loosen the fiscal purse strings. We think that this response by the markets is somewhat simplistic. In our view, the new government’s policies do not appear to mark a significant break with the past and is unlikely to be effective in overcoming deflation and orchestrating a return to growth.
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