Japan investors ready for bumpy ride aboard the 'Abe trade'
Printing money and going on a spending spree would usually sow alarm in a heavily indebted economy, but investors in Japan are betting that opposition leader Shinzo Abe will tone down his strategy if he wins power in Sunday's national election.
Made a firm favorite by opinion polls to become the next prime minister, the Liberal Democratic Party (LDP) leader wants to step up aggressive monetary easing along with heavy public works spending to help Japan escape years of deflation and make the yen more competitive so that a spluttering economy can start motoring again.
His policy prescriptions, dubbed "Abenomics" by the media, and his threat to curtail the Bank of Japan's independence, have sent a chill through some quarters of the central bank.
But investors see some merits in the strategy, and reckon the responsibility of power will prevent Abe taking excessive risks that could lead to a bond market meltdown.
"Japan could be the only industrialized country to be able to pursue a reflationary policy mix of monetary accommodation and fiscal expansion," said Shogo Fujita, chief Japan bond strategist at Bank of America Merrill Lynch.
That prospect has led to a wave of yen selling that currency dealers are calling the "Abe trade".
The yen, currently trading around 82.85 to the dollar, has fallen some 4 percent since the election's announcement in mid-November, bringing some relief for Japan's suffering exporters.
Over the same period, the Nikkei's benchmark index has gained 10 percent.
Meanwhile, the benchmark 10-year Japanese government bond yield hit a 9-1/2-year low of 0.685
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