First, the rapid decline in global trade continues to put downward pressure on the economy. Second, investors appear concerned about the Koizumi government and its ability to deliver on promises of reform. As expected, the LDP party won the Upper House election recently. The result indicates support for Koizumi's reform agenda. The focus may now shift to the content of the reform measures.
History speaks in favor of action to prevent disaster.
With the history of the 1990s fresh in the minds of policy makers and investors, it is unlikely politicians will allow Koizumi's agenda to fail. It will probably take on a different shape. If the markets are going to move higher, investors will need to see corporations improve their return on capital. Most emerging markets depend on export growth to drive their economies, which is certainly the case in non-Japan Asia. The severe drop in global trade should negatively impact GDP growth for the rest of this year.