With the conservative Liberal Democratic Party (LDP) having won the December 16 parliamentary elections, Japanese foreign and domestic policy will shift to the right. The new prime minister is Shinzo Abe - a nationalist well-known for his hard-line stance against North Korea and his denial that Japanese forces abducted "comfort women" during the Pacific War.
But fears that he may worsen already strained ties with China over ongoing territorial disputes are probably exaggerated. Mr Abe proved to be very pragmatic in his dealings with China when he was prime minister from September 2006 to September 2007.
Despite the LDP's win, Mr Abe is not popular among voters, and he may have problems getting the cooperation of the upper house when it comes to domestic policy.
But the new prime minister will probably get his way with the central bank. With BoJ Governor Masaaki Shirakawa's term ending in April, Mr Abe will be able to select a successor more supportive of his desire for yet another round of quantitative easing.
WHAT TO WATCH FOR:
- Calls legislation designed to limit the independence of the Bank of Japan in a way that would force it to ease monetary policy more quickly.
- Further backtracking on promises to end Japan's reliance on nuclear power.
- Diplomatic efforts to improve relations with Beijing.
- Attempts to balance the budget through spending cuts rather than new taxes.