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HSBC analysts feel that despite markets looking increasingly 'normal', the exception to the rule is in Japan where markets are expecting radical policy change to be unleashed after years of conservatism.

They write, "Prime Minister Abe coalition's super-majority has given him a strong mandate for reform to revive and reflate the economy. The government has already announced an interim fiscal stimulus of roughly 2% of GDP, but the centrepiece of the policy thrust is increased government pressure on the Bank of Japan to implement aggressive monetary easing. The next anticipated step in this regard is a move to a hard 2% inflation target and some indication of how this might be achieved. Markets and local media suggest this could be announced as soon as the BoJ's next policy meeting on 22 January."

They note that policy makers have seized the initiative on JPY and have opened up a fresh line of logic for JOY bears. "No longer do they point to the burgeoning Japanese bond market as the fault line for the currency. Instead, the bears assume that policy makers will succeed in pushing up inflation and nominal GDP, so you end up with a weaker currency but without a bond market crisis. The BoJ will be so active in the JGB market that no such crisis could unfold."
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