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Tokyo stocks ended higher Monday, after reassurances by Prime Minister Fumio Kishida on his economic policies heartened sentiment, but prices remained well below a 31-year high marked in mid-September as skepticism over the new leader’s approach added to concerns about the post-pandemic growth outlook.

The 225-issue Nikkei Stock Average ended up 449.26 points from Friday to close at 28,498.20, but was still 7% below its recent high point. The market has also been rattled by China Evergrande Group’s debt crisis as well as rising long-term U.S. Treasury yields and higher oil prices.

Market analysts say the key index is not likely to dip below this year’s closing low of around 27,000, helped in part by approval Thursday by the U.S. Senate of legislation to temporarily raise the federal government’s debt limit and avoid the risk of a default.

Still, the prospect that the downside will be relatively limited will not signal a quick rally unless market participants are fully convinced of what the new premier is seeking to do to rejuvenate the pandemic-stricken economy, analysts say.

Masahiro Yamaguchi, head of investment research at SMBC Trust Bank, said that while the recent sell-off is running out of steam, “the market is currently not in a situation to climb to new levels” either.

Since Kishida won the leadership of the ruling Liberal Democratic Party on Sept. 29, the Nikkei has slid 5.1%, with the eight-day losing streak through last Wednesday — the longest since July 2009 — dubbed by some as the “Kishida Shock” on social media. He was elected prime minister on Oct. 4 at an extraordinary parliamentary session.

A market slide is rare for a new prime minister, with expectations typically strong for a new leader to take drastic measures to entice voters.

Kishida, who is preparing to call an election in the coming weeks, has said he will aim for growth through “aggressive monetary easing, flexible fiscal spending and a growth strategy,” similar to the economic model of his predecessors Yoshihide Suga and Shinzo Abe.

The new prime minister has also vowed to narrow income disparities and create a virtuous cycle of growth and wealth distribution as a pillar of his economic policy, but without giving details.

The market is struggling to figure out how Japan can achieve growth with redistribution, analysts say.

“Prime Minister Kishida’s lack of specific economic policies is dragging on the market,” said Koichi Fujishiro, a senior economist at the Dai-ichi Life Research Institute.

His government plans to compile an economic package worth “tens of trillions of yen” to support individuals and businesses reeling from measures to curb the coronavirus spread. But analysts say it remains unclear how effective the stimulus measures will be to propel the world’s third largest economy.

Market participants are also wary of Kishida’s plan to consider raising the tax on capital gains and dividends as one option for carrying out his redistribution policy.

The prime minister said Sunday on a TV program he has no plan to change the tax for the time being, as “there are many things that we need to do before the financial income tax” such as crafting a growth strategy.

On top of these uncertainties, modest approval ratings for his Cabinet in media polls after the launch of his new government cast doubt on how effectively he will be able to implement his policies.

The 225-issue Nikkei average lost more than 900 points at one point on Oct. 5. | KYODO
The 225-issue Nikkei average lost more than 900 points at one point on Oct. 5. | KYODO

The approval ratings for his Cabinet stood at 55.7%, below the 66.4% and 62.0% logged at the beginning of Suga’s leadership in September last year and Abe’s second run in December 2012, respectively, according to a recent Kyodo News survey.

“Kishida will need to propose large-scale economic policies and refrain from raising the tax (on financial income) to boost stock prices from their current slump,” Yamaguchi said, adding that to lift the market he will need to show he has a strong standing among voters in the lead-up to the Oct. 31 general election.

Market participants are also keeping a close eye on developments related to U.S. monetary policy and the debt-laden Chinese property developer.

Investors are focusing on “how (the United States) plans to mitigate ongoing fears over rapid inflation,” said Maki Sawada, a strategist at Nomura Securities Co.’s investment content department.

The Federal Reserve last month signaled that a decision is nearing on beginning to scale back its massive bond-buying program on the back of the recovery from the coronavirus pandemic, and hinted at an interest rate lift from possibly next year.

Concerns over the fate of Evergrande Group grew stronger recently after trading in Hong Kong in the company and its Evergrande Property Services Group unit was temporarily suspended.

It remains unclear whether the Chinese government will launch any measures to help the property developer giant.

“The direction of the market is expected to remain uncertain as long as the myriad issues that have overlapped remain unresolved,” Sawada said.

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