The Nikkei share average gained 1.45% to 38,463.50 by midday, and was earlier up almost 2%
Japanese stocks gained strongly on Monday as the yen dipped to a three-month low after Prime Minister Shigeru Ishiba’s coalition lost its parliamentary majority in Sunday’s election, raising uncertainty over the path for policy and the economy.
Ishiba’s Liberal Democratic Party (LDP) and junior coalition partner Komeito took 215 seats in the lower house of parliament, short of the 233 needed for a majority.
The Nikkei share average gained 1.45% to 38,463.50 by midday, and was earlier up almost 2%. It opened 0.4% lower.
The yen accelerated declines throughout the session, plunging as far as 153.885 per dollar for the first time since July 31. It was changing hands almost 0.8% lower at 153.60 per dollar as of 0230 GMT.
The result of the election itself is a negative for the stock market, without a doubt, because of the rise in political uncertainty, according to Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
However, the rally is partly on the fact that this big risk event is now behind us, so there is a sense of relief. That and the weaker yen, Ichikawa said.
A weaker currency benefits Japan’s heavyweight exporters, as it inflates the value of overseas sales. It also makes Japanese stocks cheaper for foreign investors.
The transport equipment sector was the best performer among the Tokyo Stock Exchange’s 33 industry groups, climbing more than 3%. Toyota rallied almost 4% and Nissan jumped 3.3%.
Chip-sector stocks also outperformed. Chip-testing equipment maker Advantest was the Nikkei’s biggest points gainer with a 4.7% surge.
I do not expect the rally will continue, according to Norihiro Yamaguchi, senior Japan economist at Oxford Economics.
The equity market is likely to stay lacklustre till the political uncertainty clears up, he said. I would expect bond yields to stay high as concern over looser fiscal management will intensify.
Benchmark 10-year Japanese government bond futures dropped 0.11 yen to 143.95 yen, reversing an earlier gain.
The yield curve steepened, with the five-year JGB yield gaining 0.5 basis points to 0.58%, while the 30-year yield added 4.5 basis points to 2.215%.
The 10-year yield advanced 1.5 basis points to 0.96%.
