-- Neal Kimberley is an FX market analyst for Reuters. The
opinions expressed are his own --
By Neal Kimberley
LONDON, March 26 The Japanese yen could be
vulnerable to a renewed emphasis on economic policies by Prime
Minister Shinzo Abe's government, whose constitutional and
foreign policy objectives have become somewhat bogged down.
The combination of fiscal and mooted structural reforms
allied with supportive monetary policy easing by the Bank of
Japan (BOJ), often collectively called Abenomics, have so far
been a signal success for the Abe government.
The value of the yen, as a side effect, has fallen in
the wake of the implementation of Abenomics.
But other parts of the government's agenda, notably a less
apologetic foreign policy and an attempt to tweak Japan's
pacifist constitution, have proved more
Japan's top government spokesman on Monday categorically
denied a suggestion by a close aide to the prime minister that
Tokyo might revise a landmark 1993 apology to women, many
Korean, who were forced to serve in wartime military brothels.
Abe's hopes of reforming constitutional constraints on the
freedom of action of Japan's military forces, meanwhile, have
run into some push-back, most notably from within the ruling
"I think it is wanton for the government to change overnight
the interpretation of the constitution to allow the exercise of
the right of collective self-defence," Natsuo Yamaguchi, leader
of dovish coalition partner New Komeito, said over the weekend.
Abe may yet get his way on some of these issues but will
have to expend considerable political capital to do so.
His government may instead be tempted to refocus on its
economic policies, which have proved far less troublesome.
Given that his political approval rating largely rests on a
perception that Abenomics is having a positive economic impact
in Japan, the best way for him to leverage his overall position
might be to reinforce those very same economic policies.
No doubt the Bank of Japan will want to see how the 3
percentage point rise in the sales tax to 8 percent on April 1
affects consumer activity before taking any steps to ease
monetary policy even further.
BOJ Governor Haruhiko Kuroda is nevertheless ready to act if
Intriguingly, Bank of Japan Deputy Governor Kikuo Iwata said
on Monday that "the biggest worry now is that economic growth
will slump in the second quarter after accelerating in the first
quarter due to a rush in spending."
That would mean June might be the time for the Japanese
central bank to begin taking stock of the situation.
Coincidentally, the Abe administration has pencilled in June
as a date when the Government Pension Investment Fund (GPIF),
might finalise an allocation model that cuts the weighting of
domestic bonds and increases that of local stocks.
Takahiro Mitani, head of the $1.26 trillion pension fund,
said on Tuesday he was not averse to the GPIF lowering its
holdings of Japanese bonds, given low yields on offer in Japan.
It may not be too far-fetched to see a scenario where the
Bank of Japan steps in to buy government bonds being sold by the
GPIF in the middle of the year.
That could dovetail with the rollout of any new expansionary
monetary measures, depending on the BOJ's evaluation of the
impact of the sales tax hike.
It would certainly help underpin the government bond market
even as the GPIF reallocates money from domestic bonds to local
stocks, pushing up the value of the Japanese stock market.
Abenomics would get a new lease of life - and might just
help boost the Abe government's political room for manoeuvre in
more contentious areas of policy.
With foreign exchange traders likely to associate any new
round of Abenomics with a weaker Japanese currency, high summer
in Japan may mean a lower yen.
(Editing by Hugh Lawson)