Tired of the seemingly endless political drama in the US and Europe? Try Japan - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, notes that Tokyo's metropolitan 127-seat Assembly is up for election on July 2. 

Key quotes:

"It could not come at a worse time for Prime Minister Abe and his Liberal Democrat Party.  In some ways, Abe and the LDP are victims of their own success.  Recall that previously, there had seemed to be an almost revolving door at the head of government when the DPJ held the reins.  Abe is completing his second term, and the price of such political stability is corruption--several scandals and accusations of misconduct."

"The big losers may be the LDP (57 seats in current assembly) and the DPJ (7 seats).  Reports suggest that after the Tokyo election, the DPJ may shuffle its leadership. However, it is the LDP that appears most at risk.  A reformist party governs Osaka, and a victory for Tomin First in Tokyo would be a significant blow for the LDP and Abe.     A defeat for the LDP could have far-reaching implications for policy going forward, ahead of the national parliamentary election late next year."

"A loss of Tokyo for the LDP could initially weigh on Japanese equities and lift the yen.  Equity losses may be modest and short-lived as the BOJ may have pulled back on its purchases of JGBs, but it continues to buy ETFs apparently on weakness.  On the other hand,  Prime Minister Abe has demonstrated a willingness to increase fiscal stimulus. Japan.'s budget deficit last year was 5.7% of GDP.  This year's shortfall is expected to be 4.8% of GDP.  Sagging support a year ago appeared to encourage Abe to announce a JPY28 trillion economic package.  Lo and behold, Abe's approval rating recovered."  

"However, the BOJ has moved away from buying JPY80 trillion of government bonds a year and now targets the 10-year yield (+/- 10 bp on either side of zero).  Fiscal stimulus may make the BOJ's strategy more difficult to implement.   Abe has taken advantage of the better growth Japan is enjoying to push for his political agenda which includes changes to the pacifist constitution to complement the recent reinterpretation."