Abe Landslide — Black Swan 2013?

Shinzo Abe may put together a government with a super majority in the Japanese Diet.   Sounds like a mandate to us.

Abe has been promoting a massive quantitative easing by the Bank of Japan and public works spending.  The dollar/yen has rallied 7.3 percent since September 13th.   Here is ABC news,

Abe is calling for sharply increased public works spending and further easing of Japan’s already loose monetary policies. Such strategies could give Japan’s construction and materials’ industries at least a temporary boost, and help exporters by weakening the Japanese yen — which has remained at stubbornly high levels thanks to the conviction among global investors that the country remains a financial safe haven.

Abe-nomics, the magazine Shukan Bunshun, calls it: “From People to Concrete. The Abe Bubble is Coming!” it said in a front-page story forecasting a return to old-time pork barrel politics and a “fast-forwarding” of mortgage lending.

He has also  been talking tough on China and says we wants to “stop the challenge“  over a chain of islands  known as the Diaoyu/Senkaku Islands.  Many in Japan think he backs down and won’t risk an escalation with China, which could hurt Japanese business, which he close to.

So 2013 could be filled with geopolitical tensions in Asia.   Not exactly unexpected, so not exactly a Black Swan.  How, or whether, it unfolds is uncertain.   Keep it on your radar.

It will also be interesting over the next year to watch how the market reacts to more Japanese debt and quantitative easing.   Next year could see the tipping point, which kicks Japan over the edge into a debt or currency crisis.

Dollar/yen, along with the Nikkei,  have had a massive run into the election.  Not sure if they will sell the news with a super majority, however.   We will know in a few hours.

Marc Chandler is cautious about selling the yen here and does note,

As noted in our review of the positioning in the futures market,   the short-term speculative market has amassed a very large short yen position.  Outside of the 2005-2006 period, a hey day of using the yen as a funding currency (yen carry trade, a source of leverage in the latter stages of the credit cycle), the gross and net short yen position in the futures market is extreme.

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