The big news in Asia last week was that the political party that had held power in Japan for nearly all the years since World War II–the Liberal Democratic Party, or LDP–had been significantly rejected by voters in favor of a recently formed left-leaning coalition party, the Democratic Party of Japan, or DPJ. Kirk Brown, senior portfolio manager at American Beacon Advisors, says that given the long rule of the LDP in Japan, “this is quite an event as a party that has only been in existence for 12 months takes over.”
While most political observers considered the election more of a rejection of the status quo as represented by the LDP rather than an endorsement of the DPJ’s policies, there’s no question that Japan is in a difficult position. As of August 28, unemployment stood at a postwar high of 5.7%, GDP for 2009 is expected to fall by 6%, consumer spending continues to drop, and deflation remains high–the core CPI fell 2.2% in July.
One of the main planks in the DPJ’s formal platform, or Manifesto, Putting People’s Lives First, is a family-friendly approach that would pay to families a “child allowance” of 312,000 yen (about $3,900) per year through junior high school, reduce corporate tax rates for small and mid-sized companies, and move to decentralize power in Japan.