Following the Landslide election victory for Japans Democrats, CLT Solutions have been quick to alert investors as to the potential for growth when they execute plans to stimulate domestic spending.
Japanese stocks will rise while bonds decline after the opposition Democratic Party of Japan swept to power at elections yesterday was the clear message from the CLT Solutions Asian analyst team in a statement to shareholders today.
The DPJ won at least 308 of 480 seats to secure a majority in Japan’s lower house, public broadcaster NHK projected. Stocks will rise on optimism DPJ policies to stimulate domestic demand will lift the economy, while financing for those measures will result in further bond issuance, sending prices down, CLT Solutions said in the release.
Ten-year government bond yields will probably rise to 1.7 percent by year-end, while the Nikkei 225 Stock Average will advance to as high as 12,000, according to CLT Solutions. The Nikkei declined today, reversing an early surge. Bonds edged up, and the yen strengthened.
The email summary from CLT Solutions said that following the landslide victory for the DPJ, the equity market may remain excited for a couple of days or even a couple of weeks. Financing for the party’s spending plans will have to come from government bonds, they added.
The DPJ faces accelerating deflation and record unemployment as it seeks to craft an economic recovery in a nation that only last quarter emerged from its deepest post-war recession. Japan’s consumer prices fell at an unprecedented 2.2 percent in July from a year earlier, while the jobless rate climbed to 5.7 percent, the statistics bureau said Aug. 28.
Prime Minister Taro Aso’s Liberal Democratic Party lost about two-thirds of its 303 legislators in the chamber that chooses the premier. The LDP ruled Japan for all but 10 months since 1955.
The Nikkei 225 surged 25 percent through the remaining year after the last general election in 2005. Bonds fell for six straight weeks, the longest stretch in more than a year. CLT Solutions expect that a similar result may emerge as the DPJ carries out plans to boost consumption.
