Japan: Snap election to inject short-term political uncertainty - ING

Prime Minister Abe is expected to announce a snap general election and the tactical move is aimed at shoring up the current coalition's two-thirds majority in the lower house, while also securing a mandate to press ahead with Abenomics and further reflationary policies.

Key Quotes

“Local media reports suggest that the Japanese PM may be willing to abandon the policy of fiscal discipline and introduce corporate tax breaks to foster economic growth. Investors are likely to be wary of the positive implications of any modest fiscal easing, while the prospect of higher budget deficits may warrant a larger fiscal premium in JPY assets.”

“The BoJ meeting saw a minor spanner thrown into the works; new member Kataoka bravely dissented from the no-change policy decision – citing that BoJ’s JPY80trn a year asset purchasing will be insufficient to bring CPI inflation to 2%. We believe it is highly unlikely that the BoJ will step up their easing efforts, though Japanese CPI data (Friday) printing at just 0.7% may support the dovish Kataoka's case.”