A few thoughts on DPJ's landslide victory
A few thoughts on DPJ's landslide victory: monetary policy, LDP's regional character, and foreign policy.
First, on various issues of economic policy, monetary policy is the important issue which has not been discussed at all, as far as I know, in the election debate. DPJ has, therefore, a free reign over how it will act towards monetary authorities. Deflationary expectation among economic actors should be abated. Exchange rate overvaluation does harm than good on the economy. The worst scenario is as follows. DPJ pursues expansionary fiscal policy, while it does not have a coherent overall monetary policy stance. Then, monetary authorities, fearing the inflationary impact of the fiscal policy, tightents monetary belt. The consequent policy mix (expansionary fiscal policy with deflationary monetary policy) might cause disaster on national debt sustainability. Macroeconomic tzar is urgently needed in the so-called National Strategy Division.
Second, LDP has become a Western-Japan concentrated party. I don't know what impact this regionalization will have. My casual feeling is that LDP will struggle to renew its party because of this regionalization.
Third, Japan-Korea foreign relations will be interesting to watch. Hisotrically, many LDP cabinet ministers have had many mistakes over this issue. Now it is the turn of the DPJ guys. If LDP becomes more right wing party (I'm afraid it could), this will be the issue which might change the mood of the electorate before next year's upper house election.