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Abe Vs. Bank Of Japan: New Round

ByFBS
AuthorKira Iukhtenko
Published 12/18/2012, 07:36 AM
Updated 04/10/2024, 06:10 AM
LDP
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As widely expected, Liberal Democratic Party (LDP) won the Japanese parliamentary elections on Sunday, signaling Shinzo Abe’s return to power as a Prime Minister and ending the short-term rule of the Democratic Party of Japan (DPJ).

Historically, the LDP held the power almost continuously since its establishment in 1955 until it was moved aside three years ago by the DPJ. The current Prime Minister Yoshihiko Noda pledged to step down as the DPJ leader after the overwhelming defeat on Sunday. His party, initially seen as a breath of fresh air in Japanese politics, is now considered to be increasingly ineffective.

Shinzo Abe as a new Prime Minister is facing an uneasy task of fighting the deflation. He promised to move towards his announced 2% inflation target by means of an aggressive monetary stimulus.

Mr. Abe, who plans to form his cabinet on Dec. 26, said on Monday he would like the BoJ to take into account his views on monetary policy during the meeting on Dec.19-20. Will the regulator be forced to ease policy and when will it happen? That’s an important question for currency speculators.

The current BoJ governor Masaaki Shirakawa is known as an opponent to Abe’s policy easing ideas and before the election several times underlined the regulator’s independence from the government. Shirakawa’s term is ending only in April, so Abe risks meeting strong opposition on the issue that allowed him to win the election. The current BoJ Governor will preside over 5 more policy meetings.

In case the BoJ will stand against the easing, Abe threatens to revise the 1998 law that gave the institution its independence from the government. In any case, the change in legislation will take some time.

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