Major Equity Markets 2010: Fisher Capital Management Part 2

The euro-zone economy improved much faster than expected in the

second quarter of the year. Growth is estimated to have been around

the 1% level, the fastest quarterly level for three years; and this has

eased the fears about a move into a “double-dip” recession, at least for

the moment. But it is a two-speed recovery, with the German economy

estimated to have grown by 2.2% during the quarter, the Netherlands

economy by 0.9%, and the French economy by 0.6%, but with Spain

and Portugal basically unchanged and the Greek economy falling further

into recession. With domestic demand weak, it is therefore essential

that overseas demand remains buoyant if German exports are going

to continue to drive the overall economy forward; but this is now very

uncertain, and so growth projections for the rest of this year and for

2011 are still fairly cautious.

However the European Central Bank is maintaining its optimistic view

of prospects. Speaking before the latest figures were announced, the

chairman, Jean Claude Trichet, argued that the second quarter outturn

would be better than expected, that there would also be an encouraging

result in the third quarter, and that there was no prospect of a move

into a “double-dip” recession.

He also defended the bank’s actions during the recession, suggested

that the economy has responded well to those actions, and was anxious

to ensure that “perhaps part of the credit could come to the central

bank”.

There is an obvious risk that his comments will prove to be premature.

Since the latest downgrade in Ireland’s credit rating has provided

further evidence that the problems in the European banking system

are far from resolved, and that the threat of sovereign debt defaults

remains. It is not surprising therefore that markets have been unable

to resist the downwards pressure despite the relatively good corporate

results from European companies.

The UK market has also fallen sharply over the past month. The UK

economy is currently performing better than expected, with consumer

spending holding up well so far; and the markets are continuing to

give the latest measures by the new UK government to reduce the fiscal

deficit the benefit of the doubt. But there are fears that those austerity

measures with have a significant effect on growth in the second half

of the year, and into 2011, and that corporate activity will be badly

affected. The mood amongst investors has therefore become much more

cautious.

The latest news on the UK economy has been encouraging. The Office

of National Statistics has recently estimated that retail sales volumes

were 1.1% higher in July than in the previous month, and 1.3% higher

than in July last year, the strongest monthly gain since February;

unemployment remains much lower than might have been expected;

the latest Purchasing Manager’s index for July confirms that

manufacturing activity is continuing to expand; and exports also appear

to strong.

There are weaknesses in the housing sector, and apparently some loss

of momentum in the services sector, and bank lending remains low;

but overall there are hopes that growth in the current quarter will be

at reasonable levels. But there are already indications that the austerity

measures announced by the government are beginning to have an effect

on activity, and so the situation remains very uncertain.

This uncertainty is reflected in the minutes of the latest meeting of the

Monetary Policy Committee of the Bank of England. They state that the

economy is “on a knife-edge”, with “substantial risks” of a relapse

balanced against signs of “gathering momentum” in the recovery. This

uncertainty persuaded the majority of the members of the committee

that policy should remain unchanged for the present; but the minutes

indicated that “the risks were substantial, and that members stood

ready to respond in either direction as the balance of risks evolved”.

The subsequent Inflation Report from the bank was also a cautious

document, with growth forecasts revised lower, primarily because of

the expected effects of the austerity measures, and with the governor

of the bank, Mervyn King, stressing the need for “continuing monetary

stimulus” in the face of the “choppy recovery”. Interest rates are

therefore likely to remain low for some considerable time, despite the

fact that the inflation rate is well above the bank’s target rate, and so

monetary policy will continue to be supportive. But will this be enough

to justify the present market level? Global growing is slowing, and this

will add to the downward pressures on the economy resulting from

the austerity measures as they are introduced. The odds therefore seem

to favour further UK market weakness in the near-term, even though

we believe that the economic recovery will continue, and eventually

lead to higher equity prices.

The Japanese market has also moved lower over the past month. Recent

figures have shown that economic growth in Japan slowed very sharply

in the second quarter of the year because of weak domestic demand

and falling exports; and as a result China has replaced Japan as the

world’s second largest economy for the first time. Growth is estimated

to have been at a 0.4% annualised rate in the second quarter, after a

4.4% rate in the first three months of the year, and this has increased

the fears that the country may once again be slipping back into recession.

The dependence on exports has been an important adverse factor, as

overseas markets have weakened, and this has encouraged speculation

that the Bank of Japan will be forced to intervene in the currency

markets to prevent further appreciation of the yen; but even this might

not be enough to avoid a recession. In this situation, it is particularly

unfortunate that an impasse exists at the political level that is making

it extremely difficult for the government to take effective action. The

background situation therefore remains very disappointing, and the

weakness in the equity market looks set to continue.

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

 The euro-zone economy improved much faster than expected in the

second quarter of the year. Growth is estimated to have been around

the 1% level, the fastest quarterly level for three years; and this has

eased the fears about a move into a “double-dip” recession, at least for

the moment. But it is a two-speed recovery, with the German economy

estimated to have grown by 2.2% during the quarter, the Netherlands

economy by 0.9%, and the French economy by 0.6%, but with Spain

and Portugal basically unchanged and the Greek economy falling further

into recession. With domestic demand weak, it is therefore essential

that overseas demand remains buoyant if German exports are going

to continue to drive the overall economy forward; but this is now very

uncertain, and so growth projections for the rest of this year and for

2011 are still fairly cautious.

However the European Central Bank is maintaining its optimistic view

of prospects. Speaking before the latest figures were announced, the

chairman, Jean Claude Trichet, argued that the second quarter outturn

would be better than expected, that there would also be an encouraging

result in the third quarter, and that there was no prospect of a move

into a “double-dip” recession.

He also defended the bank’s actions during the recession, suggested

that the economy has responded well to those actions, and was anxious

to ensure that “perhaps part of the credit could come to the central

bank”.

There is an obvious risk that his comments will prove to be premature.

Since the latest downgrade in Ireland’s credit rating has provided

further evidence that the problems in the European banking system

are far from resolved, and that the threat of sovereign debt defaults

remains. It is not surprising therefore that markets have been unable

to resist the downwards pressure despite the relatively good corporate

results from European companies.

The UK market has also fallen sharply over the past month. The UK

economy is currently performing better than expected, with consumer

spending holding up well so far; and the markets are continuing to

give the latest measures by the new UK government to reduce the fiscal

deficit the benefit of the doubt. But there are fears that those austerity

measures with have a significant effect on growth in the second half

of the year, and into 2011, and that corporate activity will be badly

affected. The mood amongst investors has therefore become much more

cautious.

The latest news on the UK economy has been encouraging. The Office

of National Statistics has recently estimated that retail sales volumes

were 1.1% higher in July than in the previous month, and 1.3% higher

than in July last year, the strongest monthly gain since February;

unemployment remains much lower than might have been expected;

the latest Purchasing Manager’s index for July confirms that

manufacturing activity is continuing to expand; and exports also appear

to strong.

There are weaknesses in the housing sector, and apparently some loss

of momentum in the services sector, and bank lending remains low;

but overall there are hopes that growth in the current quarter will be

at reasonable levels. But there are already indications that the austerity

measures announced by the government are beginning to have an effect

on activity, and so the situation remains very uncertain.

This uncertainty is reflected in the minutes of the latest meeting of the

Monetary Policy Committee of the Bank of England. They state that the

economy is “on a knife-edge”, with “substantial risks” of a relapse

balanced against signs of “gathering momentum” in the recovery. This

uncertainty persuaded the majority of the members of the committee

that policy should remain unchanged for the present; but the minutes

indicated that “the risks were substantial, and that members stood

ready to respond in either direction as the balance of risks evolved”.

The subsequent Inflation Report from the bank was also a cautious

document, with growth forecasts revised lower, primarily because of

the expected effects of the austerity measures, and with the governor

of the bank, Mervyn King, stressing the need for “continuing monetary

stimulus” in the face of the “choppy recovery”. Interest rates are

therefore likely to remain low for some considerable time, despite the

fact that the inflation rate is well above the bank’s target rate, and so

monetary policy will continue to be supportive. But will this be enough

to justify the present market level? Global growing is slowing, and this

will add to the downward pressures on the economy resulting from

the austerity measures as they are introduced. The odds therefore seem

to favour further UK market weakness in the near-term, even though

we believe that the economic recovery will continue, and eventually

lead to higher equity prices.

The Japanese market has also moved lower over the past month. Recent

figures have shown that economic growth in Japan slowed very sharply

in the second quarter of the year because of weak domestic demand

and falling exports; and as a result China has replaced Japan as the

world’s second largest economy for the first time. Growth is estimated

to have been at a 0.4% annualised rate in the second quarter, after a

4.4% rate in the first three months of the year, and this has increased

the fears that the country may once again be slipping back into recession.

The dependence on exports has been an important adverse factor, as

overseas markets have weakened, and this has encouraged speculation

that the Bank of Japan will be forced to intervene in the currency

markets to prevent further appreciation of the yen; but even this might

not be enough to avoid a recession. In this situation, it is particularly

unfortunate that an impasse exists at the political level that is making

it extremely difficult for the government to take effective action. The

background situation therefore remains very disappointing, and the

weakness in the equity market looks set to continue.

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

4Fisher Capital Management News: Commodity Markets 2010

The performance of the commodity markets remains very impressive.

Speculative activity is a major factor, and supply shortages, often the

result of adverse weather conditions, are also providing considerable

support; but there is clearly a view amongst both traders and investors

that the general level of prices is too low, and that they will move

higher. Over the longer-term that view is likely to prove to be justified.

Commodity markets have been extremely volatile over the past month,

rising strongly in the early part of the period, but falling back sharply

towards month-end concerns about the effects of the austerity measures

being introduced in Europe, and indications of a continuing slowdown

in China, have combined to increase fears but for most of the past

month traders and investors apparently decided that the gloom was

overdone; and commodity prices also benefited from some “safe haven”

buying by investment funds.

Base metal prices are still ending the month higher overall, but below

recent levels, with the further sharp rise in the tin price as the outstanding

feature; and food prices have also moved higher, with the continuing

surge in wheat prices as the outstanding feature of these markets, to

provide further support for the view that the era of cheap food is

coming to an end. The gold price has also improved, as investors have

sought “safe havens in the present storm”; but oil prices have fallen

back.

Base metal prices are closing higher again over the past month. Zinc

and tin prices still ended sharply higher, but overall improvements

elsewhere were fairly modest.

Chinese demand remains a critical factor in these markets. It is this

demand that has been the main driving force over recent months, and

that has pushed iron ore prices to record levels and enabled other metal

prices to recover from the lows of the recent recession.

Soft commodity markets have provided a mixed performance over the

past month, but prices are generally higher. The exceptions have been

the cocoa price, which has continued to fall as weather conditions in

the Ivory Coast have improved, crop estimates have been pushed higher,

and the effects of the technical squeeze created by the decision by

Armajaro, the London-based hedge fund, to take delivery of around

7% of the world’s annual cocoa bean production last month, have

eased; and soya-bean prices are also basically unchanged over the

month. But elsewhere there has been a sharp rise in Arabica coffee

prices, and a further improvement in the sugar price.

However the main interest over the month has been in the wheat

market, after the massive price gains, and also in other grain markets.

The most significant events during the month were the decision by the

Russian authorities to ban the export of wheat and other grains until

year-end because of the drought that has devastated crops and caused

widespread fires across the country; and to ask other neighbouring

countries to take similar action.

It is not yet clear how they will respond; but the action has already

created widespread concern.

Russia was the world’s third largest wheat exporter last year, sending

18.3 million tons abroad, and so the decision to ban exports for the

rest of the year has had a dramatic effect on prices. Attempts have been

made to limit the price gains, with the US Department of Agriculture

in particular indicating that US stockpiles of wheat are close to 30

million tons and at a 23 year high, and the UN Food and Agriculture

Organisation insisting that global stocks are more than adequate to

cope with the shortfall, even if other neighbouring countries join the

Russian ban.

But these countries were expected to supply around one quarter of

total global wheat exports this year, and so the panic conditions in the

markets have not been significantly eased. Evidence of significant

purchases of US grain by China for the first time in a decade have also

added to the concerns about the availability of global supplies, and

made it even more difficult to assess the full consequences of the Russian

decision; but it seems unlikely that the surge in the prices of wheat and

other grains in over.

After rising sharply in late-July and early-August, oil prices have

subsequently fallen back towards the $70 per barrel level. There have

been warnings from the International Energy Agency that “the short-

term global economic outlook is highly uncertain, presenting significant

downside risks to future oil demand growth”; there has been a cautious

view of future oil demand from OPEC; and also a report from the US

Department of Energy that US stockpiles of crude oil and refined

products have risen to their highest levels since weekly records began

in 1990. Much will depend on future demand in the US and in China;

but the fundamentals do not seem to point to an early and sustained

improvement in prices unless there is a serious deterioration in political

conditions in the Middle East.

The swing in sentiment towards a more cautious view of global economic

prospects, and the renewed concerns about sovereign debt defaults in

Europe, have provided further encouragement for investors to seek

“safe havens” in the present uncertain situation, and this has led to a

significant rally in the gold price over the past month.

The dollar has recovered well from weakness earlier in the month, and

so the fear of dollar weakness has not been a factor pushing the gold

price higher this month. The evidence that the sovereign debt crisis is

far from being resolved, and the indications of increased Chinese

buying of gold, have all helped to push the price higher. The latest

strength may well lead to a further period of profit-taking; but given

the present international situation, it would be unwise to assume that

the improving trend in precious metal prices is over.

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

World Trade 2010: Fisher Capital Management

One of the more encouraging developments has been the rapid recovery

in the level of world trade. The recession in 2009 had a dramatic effect,

and the volume of world exports dropped by around 12%.

But largely because large parts of the global economy, and especially

China and other countries in South East Asia, were relatively unaffected

by the recession, the rebound in trading volumes had been very

impressive. There is already talk of reviving the Doha round of trade

liberalisation talks that collapsed in 2008. However it will be necessary

for relations between the US and China to improve substantially before

any real progress can be made, and present disagreements suggest that

progress will only be possible at a very slow pace, even if the global

economic recovery remains on track.

Major Equity Markets

Sentiment in the equity markets has been steady over the past month.

Markets in Europe have been unable to resist downward pressure. The

Japanese market is also lower; but there has been resistance amongst

the emerging markets in South East Asia that are supported by more

favourable economic conditions.

The Chinese authorities are obviously determined to prevent their

economy from overheating. The global recovery will therefore only

proceed at a very slow pace, and there may well be setbacks along the

way, although a move into a “double-dip” recession still seems unlikely.

There is also an increased danger of a sovereign debt default by Greece,

and possibly even by Ireland. But the swing in sentiment should not go

too far. So long as monetary policy remains supportive, the global

economic recovery is likely to continue, and this will eventually produce

a sustainable improvement in equity prices. Patience will therefore be

the most important requirement amongst investors until some of the

uncertainties have been resolved.

The Fed is in a very difficult position. The statement after its latest OMC

meeting was cautious about economic prospects, conceding that “the

pace of recovery in output and in employment has slowed in recent

months” and was likely to be “more modest” than anticipated in the

near-term. But monetary policy was left basically unchanged at the

meeting, perhaps because of the “unusual uncertainty” about prospects,

and this caused some disappointment. However there is little doubt

that further monetary easing will be introduced if the position continues

to deteriorate, because the bank’s main priority is to try to maintain

some momentum in the economy. And fiscal policy is also likely to

remain supportive, despite the massive size of the existing deficit.

Congress has been reluctant to authorise additional spending

programmes; but there is intense political pressure ahead of the elections

in November, and further programmes seem likely

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

Major Equity Markets 2010: Fisher Capital Management Part 1

Sentiment in the equity markets has been steady over the past month.

Markets in Europe have been unable to resist downward pressure. The

Japanese market is also lower; but there has been resistance amongst

the emerging markets in South East Asia that are supported by more

favourable economic conditions.

The Chinese authorities are obviously determined to prevent their

economy from overheating. The global recovery will therefore only

proceed at a very slow pace, and there may well be setbacks along the

way, although a move into a “double-dip” recession still seems unlikely.

There is also an increased danger of a sovereign debt default by Greece,

and possibly even by Ireland. But the swing in sentiment should not go

too far. So long as monetary policy remains supportive, the global

economic recovery is likely to continue, and this will eventually produce

a sustainable improvement in equity prices. Patience will therefore be

the most important requirement amongst investors until some of the

uncertainties have been resolved.

The Fed is in a very difficult position. The statement after its latest OMC

meeting was cautious about economic prospects, conceding that “the

pace of recovery in output and in employment has slowed in recent

months” and was likely to be “more modest” than anticipated in the

near-term. But monetary policy was left basically unchanged at the

meeting, perhaps because of the “unusual uncertainty” about prospects,

and this caused some disappointment. However there is little doubt

that further monetary easing will be introduced if the position continues

to deteriorate, because the bank’s main priority is to try to maintain

some momentum in the economy. And fiscal policy is also likely to

remain supportive, despite the massive size of the existing deficit.

Congress has been reluctant to authorise additional spending

programmes; but there is intense political pressure ahead of the elections

in November, and further programmes seem likely.

The critical question for investors therefore is whether the continued

monetary and fiscal support will be enough. They have been prepared

to adopt a bullish attitude to the situation, and this mood has been

helped by an encouraging flow of corporate earnings results that have

often exceeded expectations, and confirmed that the corporate sector

has been coping well so far with a difficult situation.

The gloom should not be overdone. So long as monetary policy remains

supportive, we believe that the odds favour the continuation of the

slow recovery, and that this will eventually produce better market

conditions.

Mainland European markets have fallen back sharply over the past

month, after the strong rally. There has been evidence of a further

improvement in the economic background in the euro-zone, and second

quarter corporate results have generally been encouraging; but the

signs of weakness in the US economy and the slowdown in China has

raised doubts about whether the German export performance that has

been providing most of the momentum for the recovery can be

maintained; and there have also been renewed concerns about the

possibility of debt defaults amongst the weaker member countries of

the zone. The markets have therefore been unable to resist downward

pressure.

The euro-zone economy improved much faster than expected in the

second quarter of the year. Growth is estimated to have been around

the 1% level, the fastest quarterly level for three years; and this has

eased the fears about a move into a “double-dip” recession, at least for

the moment. But it is a two-speed recovery, with the German economy

estimated to have grown by 2.2% during the quarter, the Netherlands

economy by 0.9%, and the French economy by 0.6%, but with Spain

and Portugal basically unchanged and the Greek economy falling further

into recession. With domestic demand weak, it is therefore essential

that overseas demand remains buoyant if German exports are going

to continue to drive the overall economy forward; but this is now very

uncertain, and so growth projections for the rest of this year and for

2011 are still fairly cautious.

However the European Central Bank is maintaining its optimistic view

of prospects. Speaking before the latest figures were announced, the

chairman, Jean Claude Trichet, argued that the second quarter outturn

would be better than expected, that there would also be an encouraging

result in the third quarter, and that there was no prospect of a move

into a “double-dip” recession.

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

  

Sentiment in the equity markets has been steady over the past month.

Markets in Europe have been unable to resist downward pressure. The

Japanese market is also lower; but there has been resistance amongst

the emerging markets in South East Asia that are supported by more

favourable economic conditions.

The Chinese authorities are obviously determined to prevent their

economy from overheating. The global recovery will therefore only

proceed at a very slow pace, and there may well be setbacks along the

way, although a move into a “double-dip” recession still seems unlikely.

There is also an increased danger of a sovereign debt default by Greece,

and possibly even by Ireland. But the swing in sentiment should not go

too far. So long as monetary policy remains supportive, the global

economic recovery is likely to continue, and this will eventually produce

a sustainable improvement in equity prices. Patience will therefore be

the most important requirement amongst investors until some of the

uncertainties have been resolved.

The Fed is in a very difficult position. The statement after its latest OMC

meeting was cautious about economic prospects, conceding that “the

pace of recovery in output and in employment has slowed in recent

months” and was likely to be “more modest” than anticipated in the

near-term. But monetary policy was left basically unchanged at the

meeting, perhaps because of the “unusual uncertainty” about prospects,

and this caused some disappointment. However there is little doubt

that further monetary easing will be introduced if the position continues

to deteriorate, because the bank’s main priority is to try to maintain

some momentum in the economy. And fiscal policy is also likely to

remain supportive, despite the massive size of the existing deficit.

Congress has been reluctant to authorise additional spending

programmes; but there is intense political pressure ahead of the elections

in November, and further programmes seem likely.

The critical question for investors therefore is whether the continued

monetary and fiscal support will be enough. They have been prepared

to adopt a bullish attitude to the situation, and this mood has been

helped by an encouraging flow of corporate earnings results that have

often exceeded expectations, and confirmed that the corporate sector

has been coping well so far with a difficult situation.

The gloom should not be overdone. So long as monetary policy remains

supportive, we believe that the odds favour the continuation of the

slow recovery, and that this will eventually produce better market

conditions.

Mainland European markets have fallen back sharply over the past

month, after the strong rally. There has been evidence of a further

improvement in the economic background in the euro-zone, and second

quarter corporate results have generally been encouraging; but the

signs of weakness in the US economy and the slowdown in China has

raised doubts about whether the German export performance that has

been providing most of the momentum for the recovery can be

maintained; and there have also been renewed concerns about the

possibility of debt defaults amongst the weaker member countries of

the zone. The markets have therefore been unable to resist downward

pressure.

The euro-zone economy improved much faster than expected in the

second quarter of the year. Growth is estimated to have been around

the 1% level, the fastest quarterly level for three years; and this has

eased the fears about a move into a “double-dip” recession, at least for

the moment. But it is a two-speed recovery, with the German economy

estimated to have grown by 2.2% during the quarter, the Netherlands

economy by 0.9%, and the French economy by 0.6%, but with Spain

and Portugal basically unchanged and the Greek economy falling further

into recession. With domestic demand weak, it is therefore essential

that overseas demand remains buoyant if German exports are going

to continue to drive the overall economy forward; but this is now very

uncertain, and so growth projections for the rest of this year and for

2011 are still fairly cautious.

However the European Central Bank is maintaining its optimistic view

of prospects. Speaking before the latest figures were announced, the

chairman, Jean Claude Trichet, argued that the second quarter outturn

would be better than expected, that there would also be an encouraging

result in the third quarter, and that there was no prospect of a move

into a “double-dip” recession.

Fisher Capital Management Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world. As a full service company Fisher Capital Management Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

Fisher Capital Management - Japan Elects a New Premier Part 1

Fisher Capital Management Eight and a half months after riding the Democratic Party of Japan’s (DPJ) historic lower house victory into office, Prime Minister Yukio Hatoyama announced his resignation, having haphazardly frittered away a chest brimming with political capital.

Major newspapers said that Hatoyama was resigning mainly for two reasons: his failure to keep his promise to relocate the functions of US Marine Corps Air Station Futenma, Okinawa, out of Okinawa Prefecture, and a political funding scandal that included his mother’s provision of some ¥1.26 billion to him over years.

Following Hatoyama’s resignation, Minister of Finance Naoto Kan was elected as the new Prime Minister, the fifth in four years. At his inaugural press conference Kan proposed a comprehensive reconstruction of the economy, public finance, and social security as his priority, in addition to reforming public administration, and conducting responsible diplomatic and defence policy.

Fisher Capital Management Report- Japan Elects a New Premier Part 1: The biggest question surrounding the once-popular new government is whether Kan can really turn over a new leaf for the DPJ. In his first policy speech to the Diet as prime minister, Kan sought to set his administration apart from the previous one by vowing to build “a strong economy, strong finances and strong social welfare”.

Kan stressed the need to jolt Japan out of its currently weak state, which he attributed to “anaemic economic growth, ballooning public debt and dwindling public trust in the viability of Japan's social security system”.

Observers and practitioners believe that the government is unlikely to announce any significant new policy initiatives, as Kan was already one of the main architects behind the previous administration’s economic policy, although some changes have just been announced in the DPJ election manifesto for the Upper House

election. For instance it drops the promise of doubling monthly child allowances to ¥26000 next year.

“I hope to carry over the torch of rebuilding Japan passed on to me by Hatoyama”, he observed at a press conference after his election. Alan Feldman, chief economist at Morgan Stanley in Japan, says that “although Kan’s initial speech did include some new elements, the main message was continuity with Hatoyama’s economic policies. Investors are likely to welcome the innovations, but to remain sceptical of the overall philosophy”.

However, economists believe Kan will face a mountain of challenges both at home and abroad in the near future. First, he needs to rebuild that political capital ahead of the upper house elections. Public support for the DPJ has recovered sharply after his appointment suggesting that voters have, for now, forgiven the ruling Democrats for the previous leaders’ policy mistakes. But it remains to be seen whether the initial popularity of the Kan administration will translate into a strong performance, and whether Kan will ultimately be given a strong enough mandate to push through difficult policy decisions.

Major newspaper polls give Prime Minister approval ratings of between 60 and 70 percent; but such ratings can be very fickle. The election will be an uphill battle for the DPJ. The DPJ is without one of its coalition partners, the Social Democratic Party who left the ruling camp over Hatoyama’s failure to remove the US base from Okinawa, as demanded by its leader, Mizuho Fukushima. The two parties that remain, the DPJ and the People’s New Party, hold 122 of the upper house’s 242 seats, the slimmest majority possible. Should the coalition lose that majority in the coming election, it would mean a split Diet — its majority would only remain in the lower house. And that would make passing bills extremely difficult.

Fisher Capital Management Report- Japan Elects a New Premier Part 1: Kan will have plenty on the economic front too. In terms of fiscal policy, as a former Finance minister he has turned into a fiscal conservative, having been a champion of funnelling revenue from higher taxes toward government spending in order to achieve economic growth. “Economic growth, fiscal reconstruction and social welfare reform will be achieved together”, he told reporters.