The victory of the Liberal Democratic Party (LDP) in last year’s general election was widely welcomed by the Japanese business and investment communities. There were hopes that the LDP would take an aggressive approach in setting the fiscal and monetary policies that would eventually turn the economy around. The LDP did not disappoint. Under pressure from the new government, the Bank of Japan (BOJ) decided in January 2013 to upgrade the inflation target from 1 percent to 2 percent. Then in April, under the leadership of Haruhiko Kuroda, the new governor, the BOJ introduced “Quantitative and Qualitative Monetary Easing” (QQME), a more aggressive regime, to replace the existing “Comprehensive Monetary Easing” framework and Asset Purchase Programme (APP).

The main themes of the QQME include:

•            A change in the monetary policy target. The BOJ will now commit to increasin