The Japanese Prime Minister, Yoshihiko Noda, has announced his intention to call a snap general election – if measures on voting reform and a financial bill gain opposition support. Mr Noda’s Democratic Party came to power in 2009, ending a near monopoly of Liberal Democratic Party rule which had lasted for 50 years.
The sudden political instability in Japan has sent the Yen to a six month low against the US Dollar (which, frankly, is good economic news from the Japanese perspective) of 80.85 Yen. It was only two or so years ago that the then Japanese PM, Naoto Kan, said he wanted to see the Dollar buying 100 Yen.
If an election is called, it is far from certain that the Democratic Party will remain in power. The Liberal Democrats are expected to argue that the inflation target should be relaxed from 1% to 3%. Their leader, Shinzo Abe, is advocating that the Bank of Japan should print “unlimited Yen” in a bid to help fight deflation (a problem that his party presided over unsuccessfully for many years, of course). He also suggested that if his party were to win the election, he would revisit a law which guarantees that the Bank of Japan would be free from governmental influence.
As we noted yesterday, Japan’s economy contracted last quarter by 0.9%. Amid political tensions with China; a high Yen; weak domestic demand; and muted global demand, many analysts are predicting that Japan will fall back into recession at the end of the current quarter.