JAPANESE ¥EN

We can never remember the acronyms for the two political parties in Japan. And with little wonder. The Liberal Democratic Party (LDP) has ruled the roost for practically 54 years without any sign of a challenge. The former Prime Minister, Akihiro Ota, lost his seat.

But it ran out of leaders, each one failing to push through reform or make material changes stick. The Democratic Party of Japan (DPJ) swept to power in an unsurprising outcome at this weekend's national election. They secured 308 of the 480 seats in the Lower House as voters finally noted "no more" to failure of the ruling party. The DPJ already holds the Upper House.

The mandate for change was awarded to the DPJ as voters grew increasingly weary of watching staid Japanese politics grind to a halt, failing at every turn to deal with crucial issues of the day. Not least among them is the stagnant economy facing the hurdle of dealing with a rapidly aging populace.

While the result was never in any doubt investors have embraced the change. The Nikkei immediately jumped 2% while the Japanese yen rose to its strongest since early July. The removal of uncertainty over ambiguous policy direction is a boost for the nation, but is the yen's strength likely to last?

We can see the stock market continuing to perform well with other global markets, but the rise to ¥92.80 against the dollar is less likely to stick given the DPJ's need to build credibility first. The incumbent government is likely to be generous with its fiscal stance, rising to power on proposals such as increased childcare allowances.

The strong start to Japanese trading has helped lift the Asian bourses and the Australian benchmark too with banks and resource-related sticks faring well. While South Korean stocks were lower it was profit-taking in the banking sector leading the Kospi index lower while technology continued to rise. If anything that augurs well for Monday's American session.

Some expect the DPJ to be loss bothered by the external value of the Japanese currency. It is true that investors have been remarkably sensitive to the strong message conveyed by government or Bank of Japan officials when the strength of the yen clearly choked off recovery. And now some expect the DPJ to stand aside if the yen appreciates in response to optimism over its reforms and new direction.

As hot behind the collar as officials at the Bank of Japan might be accustomed to getting as the rising yen strangles the economy, they may well just have to get used to it. But between now and then the mix of former political heavyweights and labor activists that make up the new ruling conglomerate may find it more difficult to come together on key issues beyond the platform that carried them to power.

If you think bonds are boring, you haven't read the 'Secrets of the Treasuries Market'.
As a subscriber to Global Resources Alert, you know how to play the wild swings
in bonds UP and DOWN for potentially big gains!!

The Supreme Council of the Secret Order of Jurojin

Tyche Research