LDP Wins Landslide Victory In Japan

In Japan the LDP won a landslide victory in connection with the Lower House election and will be in a strong position to push through its growth agenda.

Boehner accepts tax increases for affluent households according to press reports.

Focus today is on Draghi's speech in the European parliament and the fiscal cliff negotiations.

Markets since Friday

In Japan the Liberal Democratic Party (LDP) won a landslide victory in connection with the Lower House election on Sunday and LDP-president Shinzo Abe is poised to replace Yoshihiko Noda as Japan’s prime minister. LDP and its traditional coalition partner New Komeito will together have a two-third super-majority in the Lower House that allows it to overrule a possible majority against it in the Upper House. Hence, LDP will be in a very strong position to push through its political agenda.

The highest priority for the new government will be to pull Japan out of recession and LDP has been campaigning on the need for more fiscal and monetary stimulus. We expect that the new government will be able to push Bank of Japan in a more dovish direction through new appointments to the board and possibly a change in the Bank of Japan law.

According to press reports Republican House Speaker John Boehner has for the first time accepted a tax increase for incomes exceeding USD 1m in return for significant cuts in entitlement programmes. According to press reports Boehner made the concessions in connection with a phone conversation with president Obama on Friday but it has not been confirmed by Boehner’s office. If correct it does suggest we are moving closer to an agreement in the fiscal cliff negotiations.

The US stock market on Friday closed lower as the uncertainty around the fiscal cliff negotiations continued to weigh on the market. S&P 500 closed 0.4% lower on Friday. Sentiment in Asian trade has improved on the back of a clear election victory for LDP in Japan and signs that we are moving closing to an agreement in the fiscal cliff negotiations in the US. In Japan Nikkei is up 1.3% and Shanghai Composite is up 0.6%.

US bond yields have also edged slightly higher since market close in Europe on Friday on the back of the improved sentiment during Asian trade.

In the FX market JPY has weakened on the back of the clear LDP-election victory and USD/JPY is this morning trading 84.05. EUR has strengthened slightly and EUR/USD is currently trading 1.316. In the Scandinavian currencies SEK has continued to weaken against EUR ahead of tomorrow’s Riksbank-meeting, where we expect Riksbank to cut its leading interest rate.

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