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Sunday, August 30, 2009

Regime Change in Japan

Bloomberg details the massive victory of the Democratic Party of Japan:

Hatoyama, 62, led the DPJ to win 308 seats yesterday in the 480-seat lower house, public broadcaster NHK said, ousting the party that ruled Japan for all but 10 months since 1955. The DPJ gained control of the upper house two years ago.
And the reason for the change:
Voters have given Hatoyama a mandate to switch priorities from aiding the companies that built Japan’s $4.9 trillion economy to helping families cope in a society where almost a quarter of the population will be over 65 by 2014. To encourage people to have children, the DPJ says it will increase child support and lower education costs, paying for this by slashing outlays on roads, bridges and public works.

“The whole idea of people rather than concrete, and, ‘Let’s be nicer to the Japanese population,’ could be immensely positive in the long term,” said Philip Whittome, who manages Japanese stocks at Investec Asset Management in London. “The election might lead to some changes in how Japan is run in ways that are underappreciated by the foreign investment community.”
While that may indeed have positive economic implications in the long run, I'm not sure how this will transform the Japanese economy in the short-run. An economy that according to this morning's sales report shows that wholesale sales dropped 30% year over year in July (greater than June's 28.7% year over year change).

In other words, Yukio Hatoyama's honeymoon may be short:
Economic reports indicate the expansion that began last quarter may already be in danger: the jobless rate rose to a record 5.7 percent in July, factory output growth slowed and household spending dropped the most in five months. That leaves Japan “more dependent on exports that it’s ever been,” said Hugh Patrick, a professor at Columbia University in New York.
Source: METI