If options are one way to measure sentiment, confidence is returning to Japan’s stock market as investors prepare for the next phase of Prime Minister Shinzo Abe’s growth strategy.

The Nikkei Stock Average Volatility Index, a gauge of option costs, touched its lowest since January 2013 on May 15, data show. The index slumped 37 percent from this year’s high in February through last Friday, with the premium to its U.S. counterpart narrowing 32 percent.

Investors in the Nikkei 225 stock average enjoyed the developed world’s biggest rally last year with a 57 percent surge, and are now enduring its steepest slump. Abe’s revamped growth initiatives due in June will test his reform agenda known as “Abenomics,” which started with radical monetary stimulus, the usual massive public spending and vows of structural reform.

“The key here is optimism,” Kenji Ueno, a senior investment manager at Sompo Japan Nipponkoa Asset Management Co., said. “There’s no magic in the growth strategy, but when the government takes the initiative and announces more measures, sentiment will improve.”

The Nikkei rose 2.6 percent last week to 14,462.17, paring its decline in 2014 to 11 percent. The gauge of Japanese volatility slid 0.2 percent to 20.97 last week while the Chicago Board Options Exchange Volatility Index, the gauge of U.S. option costs known as the VIX, slumped 8.7 percent to 11.36.

After monetary easing and government stimulus caused stocks to surge last year, investors are waiting for signs of progress on the so-called third arrow of Abe’s revival strategy, which would make it easier to do business in the world’s third-biggest economy.

The prime minister will tackle labor market deregulation, Abe told a German newspaper last month. Economy Minister Akira Amari has said a corporate tax policy will be included.

The Liberal Democratic Party will propose the creation of “super regional banks,” overhaul the governance of the world’s biggest pension fund and expand Japan’s professional baseball league to 16 teams from 12 to energize local economies, a recent report said.

“The key trigger lies more on the reform side,” Pierre Gielen, investment specialist for equities at Amundi Asset Management, which oversees about $1 trillion, said. “I would expect much more re-rating of the market and for more structural reasons rather than monetary policy reasons, which happen to be more relatively short term.”

The cost of put options on the iShares MSCI Japan exchange-traded fund fell on May 16 to the least relative to calls this year, figures show. The measure known as skew dropped to 1.04 points, from a high of 4.89 in March.

Abe is looking for ways to counter the damping effects of an April 1 sales-tax increase, which economists project will cause gross domestic product to contract this quarter.

Japan’s economy will shrink 3.4 percent in the April-June period before expanding 2 percent the following quarter, one survey of analysts showed. A measure of sentiment on the economic outlook among taxi drivers, restaurant staff and other workers soared by a record in April, signaling the damage from the sales-tax increase may be short-lived.

Nobuhiko Kuramochi, head of investment information at Mizuho Securities Co., doesn’t expect Abe’s revamped growth promotion to make a splash in the stock market.

“The market’s focus is shifting to whether an economic slowdown will be within expectations in May and June, like it was in April,” Kuramochi said. “I don’t think we will see strong outlooks, both in terms of company earnings and the growth strategy.”

The Nikkei volatility gauge closed last week at 16 percent below its average this year. Investors held 1.56 million put options on the underlying stock index, compared with 1.54 million bullish contracts, data show.

The Nikkei 225 will rise to 16,332 by the end of the year, according to a survey of 11 analysts this month. That would be a 13 percent rally from last week’s close.

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