Upper House elections, higher Nikkei forecasts

The ruling coalition will probably defend its two-thirds majority at the Upper House election on 21^st July. That means continued fiscal tightening, ultra-loose monetary policy and little progress on structural reform. Meanwhile, we still expect stock markets to sell off later this year, but the recent rally has prompted us to revise our year-end forecasts for the Nikkei. We now forecast a 12% drop from current levels.