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Japan stocks advance on Abe’s win, signaling fiscal spending and continued loose monetary policy

Bloomberg, JIJI

A landslide election victory Sunday for Prime Minister Shinzo Abe sent Tokyo stocks higher and the yen down Monday, with the path paved for a continuation of loose monetary policy.

The benchmark Nikkei 225 average rose for the 15th straight session on the Tokyo Stock Exchange. The index gained 239.01 points, or 1.11 percent, to end at 21,696.65, its best finish since July 15, 1996.

Meanwhile, Japan’s currency was trading at ¥113.77-79 to the dollar as of 5 p.m. in Tokyo, slightly lower than the ¥113.32-32 at the same time on Friday. In the morning, the yen had fallen to the 114 level.

Abe’s landslide victory signals continuity with his platform of fiscal spending and monetary easing.

With Abe now in good political shape ahead of a pending decision on nominating the Bank of Japan’s leadership, the Japanese currency slumped to its weakest since July. The nation’s two main benchmarks extended their recent rallies that sent them to the highest in at least a decade. Elsewhere in Asia, equities swung between gains and losses. Oil extended gains after OPEC and its allies achieved record compliance to cuts in September.

Abe’s ruling coalition retained a two-thirds majority in the Lower House, bolstering his chances of becoming the nation’s longest-serving postwar leader. His Abenomics program has spurred a more-than 20 percent decline in the yen since he took office in December 2012, while the Nikkei 225 average has roughly doubled.

The election outcome is likely to be good news for industries from nuclear power to defense, while posing challenges to others such as retailers.

Abe won office in 2012 with a central bank policy of massive quantitative easing that pushed the yen lower. The currency has weakened from a 2011 peak and provided a tailwind for many of the countries’ biggest manufacturers such as Toyota Motor Corp.

Corporate profits have been boosted by a resurgence in Japanese exports, which have shown double-digit gains in the past three months. Some of the companies that stand to gain the most from a depreciating yen include Fanuc Corp., Canon Inc. and Nintendo Co., as most of their sales come from overseas.

The question going forward is how long the government will continue its stimulus plans. With inflation still weak and wage growth still sluggish, BOJ Gov. Haruhiko Kuroda has been staying the course with its massive monetary easing program.

Abe also billed the snap election as a chance to test public opinion on an increase in the national consumption tax. When he raised the levy in 2014, the economy tipped into recession. Abe has twice since put it off but recent signs of growth make it hard to justify a further delay.

In the election campaign, Abe linked an envisioned increase in the levy to 10 percent from 8 percent in October 2019 to planned spending on education and support for young families. That may help companies including education-related publisher Benesse Holdings Inc. and cram-school operator Gakken Holdings Co.

Retail and consumer giants such as Seven & i Holdings Co., Aeon Co. and Kirin Holdings Co. may suffer as higher taxes undermine consumer spending.