Tokyo stock market hopes for continuity of Abenomics

October 13, 2017

TOKYO- The majority of Tokyo stock market players hope the Abenomics economic policy mix of Japanese Prime Minister Shinzo Abe will be maintained after the Oct. 22 election for Japan's House of Representatives.

If the ruling coalition of Abe's Liberal Democratic Party and Komeito succeeds in convincing voters of its stability during the 12-day official campaign period, which began on Tuesday, the market "will continue to be firm, backed by brisk corporate earnings and the yen's weakness against the dollar," Maki Sawada of Nomura Securities Co. said.

Despite recent political turmoil, such as a realignment of opposition parties, the benchmark 225-issue Nikkei average hit the highest closing level in nearly 21 years for the second straight day on Thursday and has stayed above 20,000 since late September, when the plan for the snap election was disclosed.

If the ruling camp continues to hold two-thirds of the seats in the lower chamber of parliament after the election, the framework of Abenomics, including the Bank of Japan's aggressive monetary easing, which has led to the yen's fall against the dollar and higher stock prices, is expected to be kept in place.

Investors are positive about this scenario as the Nikkei has now more than doubled in value since December 2012, when Abe's second term as prime minister began and Abenomics was introduced, market watchers say.

But Abe's leadership is expected to wane depending on how much the ruling coalition retreats from their pre-election strength in the Lower House. The market is seen coming under selling pressure if skepticism spreads over whether Abe's ongoing economic policy package will continue.

"It's inevitable that stock prices will plunge" if the LDP is ousted from power, an official of an asset management firm warned.

Most market players are worried that a delay in implementing policies would be unavoidable if an opposition party takes the reins of government, with the two parliamentary chambers then being controlled by different political parties, analysts say.

In 2009, the Nikkei average fell 5.0 percent in the month after the then Democratic Party of Japan wrested power from the LDP in the Lower House election in August. The drop reflected concerns over the DPJ's ability to manage its administration, according to market sources.

By contrast, the Nikkei average rose 4.2 percent in the month after the LDP scored a landslide victory in the September 2005 Lower House election, in which the biggest issue was the privatization of postal services, and jumped 10.9 percent in the month after the LDP won back power from the DPJ in the December 2012 election. Jiji Press