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Nikkei soars as Abe wins

July 11, 2016

Japan's Nikkei index has rebounded after a week of losses, bolstered by expectations of fresh government stimulus to kickstart anemic growth and following a landslide election victory for Prime Minister Shinzo Abe.

Japan Shinzo Abeshakes LDP
Image: Reuters/T. Hanai

Japan's blue-chips stocks index rose 3.98 percent on Monday, while the broader Topix index shares climbed 3.79 percent after Prime Minister Shinzo Abe's coalition swept weekend parliamentary elections.

Abe won a strong mandate to continue his economics policy, dubbed as Abenomics, and including ultra-loose monetary policy, higher fiscal spending and a drive to deregulate markets.

Nobuhiko Kuramochi, chief strategist at Mizuho Securities, said the key question for Abe would be whether he could carry out urgently needed structural economic reforms. "If Abe fails to do so despite the political freedom he has gained, that will be negative for foreign investors' appetite for Japanese stocks," he told the news agency Reuters.

Stimulus hopes

For more than a decade, successive governments in Tokyo have been battling falling prices, stagnating growth and rising public debt. Shortly after Abe took office in 2012, his economic policies initially appeared to be bearing fruit, causing growth and prices to edge up. But in recent months, the effects of the government's massive spending have been waning again.

The victory fanned speculation that the government would soon launch even more fiscal stimulus with a package reportedly worth as much as 20 trillion yen ($196 billion, 177 billion euros).

Abe said in a press conference Monday he will order his economy minister to draft fresh stimulus measures on Tuesday. Reportedly, they would include a program to speed up the development of high-speed and magnetic-levitation train technology as well as funding to improve Japan's railway infrastructure.

Yen rally fizzles

While Japanese stocks were rising, the yen fell on Monday - welcome news for Japan's exporters who had been suffering from months of gains in the currency as investors sought it out as a safe-haven asset amid spreading uncertainty over global growth and the fallout from Britain's vote to leave the EU.

Halting a four-day rally, the yen weakened against most of its 10 major peers, with the dollar jumping to 101.70 yen from 100.47 yen in the US on Friday. The euro strengthened to 112.36 yen, up from 111.06 yen in New York on Friday.

"This is good news for anybody who's keen to get long dollar-yen ahead of the July 29 BoJ" meeting, Gareth Berry, a foreign-exchange and rates strategist at investment bank Macquarie Group, told Bloomberg News. "Give it another three weeks and dollar-yen bulls' patience will be rewarded."

The Bank of Japan (BoJ) will meet at the end of July, with policymakers widely expected to unleash more monetary easing measures aimed at weakening the yen further.

uhe/kd (AFP, Reuters, dpa)