Action by a key central banker means that the US is not the only country that plays politics with its budget, says Jim Jubak, who explains why investors should look at this country.

It is good to remember that the US isn’t the only country that plays politics with its budget. Japan is doing this to an even greater degree than the US is at the moment, although that is hard to believe.

Here is the evidence. In December, we had a resounding election victory in Japan by the Liberal Democratic Party, and the new prime minister is Shinzo Abe. He ran on a platform of stimulus, stimulus, and more stimulus.

A major part of that was that the Bank of Japan, which has a 1% inflation target, would raise its inflation target to 2%. In other words, it would double the amount of inflation that it wants to see in the Japanese economy, and this would force the Bank of Japan, if adopted, to do massive amounts of monetary stimulus to weaken the yen, etc.

Then, the question was,would the Bank of Japan give in to what is clearly political pressure? The deal announced on January 22 was OK—yes indeed, a partial cave, the bank agreed to raise its inflation target from 1% to 2%, as Abe had suggested—but it put off all of the real stimulus, the bond buying that would weaken the yen by putting more money into the monetary system. It put that off until early 2014.

The market hasn’t been that amused by this delay, but the delay really, I think, is only temporary. The governor of the Bank of Japan is in the last months, last weeks of his five-year term, so Abe will get to appoint his own man to head the bank. A number of the deputies are also nearing the end of their terms, so it's a big turnover in who is running the Bank of Japan, which I think all means that Abe will basically get to set this policy.

The motivation for this is just getting stronger and stronger as we get closer and closer to the next big election in Japan, which is in July. It is an election for the Upper House, called the House of Counselors, in the Japanese Parliament, which is called The Diet. Abe’s party doesn’t control this, doesn’t have a majority in the Upper House, and he would very desperately like to have one because it means that he wouldn’t have to deal with opposition being able to block any of his legislation.

I think getting the Japanese economy revving a little bit higher before the election in July is a really big deal. To do that, I think you are looking at a need to get the yen weaker—maybe from about 88 to the dollar right now, it looks like we might need to get the yen to 95 or 100 to the dollar to get the Japanese export industry really rolling. And probably to get the stock market up to maybe something like 12,000 on the Nikkei from 10,400 or 10,500, where it is right now.

So all of that you can see would imply that the Japanese market is one of the best markets in the world to be in the short term even though the Japanese economy is still in recession.

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