Jury is out on DPJ but chances remain within domestic stocks

So, the Liberal Democratic Party (LDP) is gone. The dominant party in Japanese politics since its founding in 1955 was humiliated in the recent Lower House election, and faces the prospect of a sustained period out of power for the first time in its history.

In recent years, Japanese equity investors have had no love for the LDP. When, in the run-up to the previous Lower House vote in 2005, Prime Minister Junichiro Koizumi vowed to destroy his party, it proved the spark for an excitable 50% rise in the Topix. The contrast with the muted reaction to this year’s potentially more momentous poll is stark: Japanese shares, particularly those involved with the domestic economy, have significantly underperformed those of other developed markets over the last few months. But why the apathy? Firstly, there seems to be a reaction to the euphoria of 20...