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It's a fair question to ask about a country whose debt is nearly twice the size of its economy, particularly in light of this week's political developments. On Sunday, the ruling Democratic Party of Japan-led coalition government lost its majority in the upper house.

This was a setback for Prime Minister Naoto Kan, who is known as an advocate of fiscal reform. That should be a clear negative for the yen, as political gridlock makes fiscal-reform progress less likely. Indeed, the yen weakened against the dollar and euro a tad on Monday, but the move was relatively small.

The setback was real, but fiscal reform is far from dead here. A small reform-minded opposition party called Your Party gained 11 seats -- enough to submit legislation to the Diet.

Your Party leader Yoshimi Watanabe gave a series of media interviews Wednesday, in which he called for the Bank of Japan to set a 2% inflation target, said the government and Diet needed to be able to replace the central bank head if needed. He also said the BOJ needed to be mindful of yen strength when making policy. Online Marketing Services Provider.

"Insufficient monetary easing has been the reason why Japan hasn't been successful in getting rid of its deflationary gap, and there is nothing more to say than that," Mr. Watanabe told Dow Jones -- although I have a hunch he has a lot more to say in the weeks ahead.

U.S.-Japanese yield differentials will also tend to favor the yen for a while.

At the conclusion of its regular meeting Thursday, the BOJ is expected to upgrade its real economic growth forecast for the fiscal year which began in April from 1.8% to around 2.5%, according to reports.

But it is also widely expected to keep its main policy interest rate at 0.1%, where it's been since December 2008.

An upcoming change to Japan's margin trading regulations will likely support the yen in the coming weeks. Some analysts estimate margin trading comprises as much as 20% to 30% of yen trading liquidity here on any given day. Direct Marketing Services Provider.

Last year, the Financial Services Agency announced it would set limits on how much foreign-exchange investors can buy on margin, in order to protect "Mrs. Watanabe" - no relation to the Your Party leader. The common surname has become the collective moniker for Japan's retail investors, in a country where housewives are often in charge of family budget and investment decisions.

The plan calls for the leverage cap to be set at 50 times the amount of principle cash committed starting in August, and then further cut to 25 times next year.

The rule change came after a spate of local media reports about some of these housewives losing huge sums, trading on margin hundreds of times the minimum amount they were required to invest up front to open their accounts. Media Marketing Agency.