It was already evident on Friday that Shinzo Abe's victory in the Japanese elections had been priced in by the markets. An element of uncertainty has been added given that, while the majority – LDP (Liberal Democratic Party) and new Komeito – now also controls the Upper House, the LDP alone does not have an absolute majority and is therefore somewhat limited in its reform actions . While the first two pillars of 'Abenomics' (quantitative monetary expansion and expansive budgetary policy) are widely shared (not only within the majority but also in a bi-partisan sense), the third pillar (what we call in Italy the 'structural reforms', i.e. liberalizations in the labor market and in the product market), covers more contentious policies and a strong political consensus will be needed to get the reforms approved in the two Chambers.
After some initial enthusiasm, the markets showed signs of disappointment (the Nikkei records -1,4%) but then the Tokyo Stock Exchange closed positive. The yen strengthened (just below 100), and so did the euro (to 1,316). Quotations on the Tokyo Stock Exchange are slightly retreating, and gold has strongly recovered, first hovering well above the 1300 level and then falling back to 1294 (in the early afternoon in Japan). Oil remains strong, above 108 $/b.
