The unofficial results of Japan's Diet elections on December 16 show that the main opposition Liberal Democratic Party (LDP), led by Mr. Shinzo Abe, won a landslide victory over Prime Minister Yoshihiko Noda's ruling Democratic Party of Japan (DPJ). This LDP win will usher in a government that will be committed to economic stimuli through fiscal spending and further easing in monetary policies. As a result, the Bank of Japan (BOJ) will likely come under intense political pressure to further ease such policies because the LDP has a clear agenda of reviving the economy and addressing persistent deflation. The LDP's two-thirds majority in the Lower House will comfortably allow Mr. Abe to push forward his fiscal measures to help support an economic recovery.
We at KResearch are of the view that easing measures by the new government in 1Q13 will help them achieve short-term goals in addressing recession, but a structural problem will continue to be their long-term challenge. Given this, we expect that Japan's economy will grow 0.7 percent in 2013, or within 0.2-1.2 percent, down from the 1.7 percent pace in 2012.
Although Japan's exports will perhaps benefit from a weaker JPY next year as a result of BOJ ultra-eased monetary policy, recovery momentum will hinge on the global economic recovery that will likely be gradual, rather than rapid. Nevertheless, JPY depreciation next year may offer opportunities for Thai businesses to import intermediate components and machinery from Japan to raise their production capacities amid rising operating costs.
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