Most Japan shares rise after Abe’s ruling coalition wins polls

Most Japan shares rise after Abe’s ruling coalition wins polls
Business & Markets 2013
Written by Bloomberg
Monday, 22 July 2013 11:20

(July 22): Most Japanese shares rose, with the Topix index little changed, after Prime Minister Shinzo Abe’s ruling coalition solidified control of parliament in elections yesterday. Gains were limited as the yen strengthened.

NEC Corp. jumped the most on the Nikkei 225 Stock Average on a report the computer manufacturer will form a server partnership with Hewlett-Packard Co. Nippon Paint Co. surged to its highest in 23 years after the industrial paintmaker raised its profit forecast. Nissan Motor Co., an automaker that gets 80 percent of revenue overseas, lost 0.8 percent. Utilities fell the most among the Topix’s 33 industry groups.

About three shares rose for every two that fell on the Topix, which was unchanged at 1,211.99 at the trading break in Tokyo. Volume was about 8.8 percent below the 30-day average. The Nikkei 225 was little changed at 14,587.26.

“We all thought he would win, so it’s now all about the implementation, being committed to the economy and the move forward,” said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. “Abe has been nothing but vague on the ‘Third Arrow.’ The market wants to see details. The easy part is over.”

The upper-house election victory gives Abe’s ruling coalition a majority in both houses of parliament, enabling faster policy making as it seeks to deliver on promises for structural reforms. The Liberal Democratic Party-led government controls both legislative chambers for the first time since 2007 and need not face another election for three years.

Overwhelming Victory

“The government has the stability to implement its growth strategy,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., Japan’s fifth-largest lender by market value. “Even though the indexes are wavering overall, most stocks are strongly up and investors are taking the election results as good news and buying individual shares that will benefit. The stronger yen is weighing on gains.”

After plunging as much as 18 percent from a May 22 high, the Topix rebounded amid optimism Prime Minister Shinzo Abe will push through reforms following the polls. The gauge added 15 percent over the past five weeks, the biggest such advance since April 2009.

Investor attention will now shift to whether Abe and his coalition will cut corporate taxes, ease regulations, loosen labor laws and join the Trans-Pacific Partnership Free-Trade Agreement.

Sales Tax

Another focus will be whether to raise the consumption tax as planned in April 2014 to rein in Japan’s fiscal deficit and national debt. Abe wants to make a decision on the sales tax this autumn, he said on TV Asahi on July 21. Finance Minister Taro Aso said a decision will be made around October.

The yen touched 99.61 per dollar today, compared with 100.65 yen on July 19. Japan’s currency strengthened against all but two of its 16 major peers today.

The Topix traded at 1.30 times book value today, compared with 2.49 for the S&P 500 and 1.69 for the Stoxx Europe 600 Index yesterday. The gauge’s 30-day historic volatility was at 25.94 today, down 40 percent from its July 2 high of 43.22.