Transformative Election Results in Japan

December 17, 2012

Japan’s Liberal Democratic Party captured 294 seats in the lower house of parliament, a massive gain from the 119 seats it held previously.  Along with New Komeito’s 31-seat total, the incoming coalition will control a “supermajority” of 325 seats, more than 2/3rds of the 480 seats in that legislative chamber, and that total will enable the lower house to veto any initiatives from the upper house, which the outgoing Democratic Party of Japan still controls. 

Shinzo Abe will become Japan’s prime minister effective December 26.  It’s a post he held previously during the year to September 26, 2007.  Following Sunday’s election results, Abe reiterated his intent to have the Bank of Japan adopt a 2% inflation target.  He called for a JPY 10 trillion extra fiscal stimulus, and the fate of planned sales tax increases in 2014 are in some doubt.  He also repeated an unconditional claim to sovereignty over the Senkaku islands, which China also claims.  Dollar/yen touched a high for the move of 84.42 on Sunday night but has slipped under 84.0 and is up just 0.2% on balance at 83.70.

The outgoing Democratic Party of Japan (DPJ) won just 57 seats, plunging from the party’s prior claim to 308 seats.

The dollar has also climbed 0.3% against the Australian and New Zealand dollars, 0.2% vrsus the loonie and 0.1% relative to the euro.  The greenback is unchanged against the Swiss franc, off 0.1% versus the yuan, and 0.2% softer versus sterling.

Stocks fell in Asia for the most part and are down in Europe as well.  An exception was the Nikkei that jumped 0.9% on the expectation of massive fiscal and monetary stimulus, the new government’s intolerance against a strong yen, and its hostility toward China.  Chinese share prices ironically also rose, climbing 0.5%.  Otherwise, equities fell 0.9% in Taiwan, 1.5% in the Philippines, 0.6% in South Korea, 0.4% in India and Hong Kong, 0.3% in New Zealand and 0.2% in Australia.  Stocks in Europe have declined 0.7% in France, 0.5% in Spain and Italy, 0.6% in Britain, and 0.3% in Germany.

No breakthrough has been announced in U.S. talks to soften the severity of the fiscal cliff.  The school massacre in Newtown Connecticut remains a distraction from Washington politics.

Ten-year German bund and British gilt yields rose two basis points apiece, while the Japanese JGB is unchanged.

Gold and oil prices slipped by 0.3% to $1691.20 per ounce and 0.2% to $86.57 per barrel.

The growth of service-sector activity in New Zealand slowed last month.  The services PMI printed at 54.1, down from 57.4 in October.  But consumer confidence in New Zealand advanced over 8% to a reading of 111.1 in the fourth quarter of 2012.

Japanese machine tool orders in November were revised marginally to show a 21.3% drop from a year earlier.  Singapore’s trade surplus narrowed 45% on month to SGD 1.95 billion in November.

A strategic committee in the new Chinese government announced that curbs on the property market would be retained and stressed that the quality of growth, rather than the quantity, would get top priority.  This implies no hurry to restore 9-10% GDP growth.  Prudent monetary policy will be pursued, along with a pro-growth fiscal stance.

Euroland labor costs accelerated to an on-year 2.0% increase last quarter from 1.9% in the second quarter and 1.6% in the first quarter.  The acceleration was concentrated in non-wage labor costs.

Euroland’s seasonally adjusted trade surplus settled back to a three-month low of EUR 7.9 billion in October from EUR 11.0 billion in September, as exports posted a monthly drop of 1.4% on top of a 1.3% decline in September.  The unadjusted trade surplus of EUR 10.2 billion showed great improvement from a year before, nevertheless, as the 12-month 14.3% increase of exports was twice as big as the gain in imports. 

German Chancellor Merkel and ECB President Draghi speak publicly today.

Britain’s Rightmove house price index posted a record monthly drop of 3.3% in October, trimming the 12-month increase to 1.4%.

According to the Conference Board, the French index of leading economic indicators dropped 0.5% in October, while the index of coincident indicators edged down 0.1%.

Danish producer price inflation eased to 3.4% in November from 3.5% in October. Czech producer price inflation eased to 1.6% from 1.9% in October, but harmonized Icelandic CPI inflation accelerated to 6.0% from 5.1%. 

Italy’s unadjusted trade surplus increased sharply to EUR 2.45 billion in October from EUR 0.41 billion in September.  Norway’s trade surplus of NOK 31.87 billion in November was a mere 0.3% wider than the month before.

Turkish consumer confidence improved 3.5 points to a reading of 89.2 in November.

Scheduled U.S. data to be released today include Treasury Department-reported capital flows and the Empire State manufacturing index.  Lacker and Stein of the Federal Reserve will be speaking publicly.  Canada releases existing home sales and net security transactions. 

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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