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Can the DPJ fix Japan?

New government must be careful not to crank up the JGB machine too far.

Victory at the elections for Japan’s opposition, the Democratic Party of Japan, after almost 50 years of uninterrupted rule by the Liberal Democratic Party, offers the prospect of real change for Asia’s oldest democracy. It is urgently needed. The DPJ faces the daunting task of revitalizing a nation that suffers from an ageing population, a crushing debt burden, a strangling bureaucracy and an underperforming economy.

The pessimistic view holds that the DPJ will be unable to dismantle the intricate and longstanding power structure of Kasumigaseki, the bureaucracy named after the district in Tokyo where it is headquartered. Little will change. More optimistic commentators, however, believe that the DPJ – despite its inexperience – will be able to effect real reform, and if they are right there will be implications for financial markets. One Tokyo-based equities strategist notes wryly that stocks in companies that manufacture baby-related goods have begun to creep up in anticipation of DPJ policies aimed at combating the country’s notoriously low birth rate. The need for the DPJ to encourage that most fundamental form of domestic productivity is certainly pressing; it must also balance its desire to stimulate on the economic front with fiscal prudence lest it spend Japan into yet further indebtedness.

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