All eyes remain on the household sector and overseas economies. So the large picture looks less promising than the perspectives of single companies. But the optimism of Japan's corporate leaders is not unfounded. Stocks will likely be strong again after the current slowdown has been digested.

The scandals at venture investment companies and consumer loan companies have further put off major retail investors and funds. Governance issue are still a very sensible topic in Japan's market. But we also had a shift from small caps to large exporters because of the weak Yen and underperformance of the domestic economy. At current prices, I think that there are many excellent companies and ventures that might be worth a second look.

There is little chance for a rate hike today. The BOJ has been stressing throughout the year that sound communication with other market players is at the top of its agenda. So we will have to watch the speech of Mr. Fukui for hints on a rate hike in January closely. But if market sentiment remains as weak as today, there is little chance for a rate hike even in January.

There is continuing strong concern about Japan's huge public debt within the BOJ, and the household sector will not increase its consumption unlike it sees higher income from its financial assets. A rate hike might also stop the continued weakness of the Yen. The negative impact on the corporate sector would also likely be limited.

The tax break will have very little impact because it will terminate in 2008 while Japanese households are looking for long-term investment opportunities. Economic policy of the new government still looks pretty murky, but the government at least seems to try to not to make any major economic mistakes. Especially the continued pressure on budget and bond issuance cuts leaves room for optimism. Although there are many signs that “old-style” LDP polices are returning, it needs to be pointed out that “old style” LDP policies, despite the 90’s policy disaster, have rarely been a direct obstacle to corporate performance. The more general and rather long-term problem is that “old-style” LDP policies won’t be able to revive Japan’s household confidence and solve the – many – remaining structural problems.