Tokyo stocks lead Asian rally

The Japanese sharemarket has lifted as much as 3.6pc after Shinzo Abe’s election win.

Japanese stocks led a rally across Asia on Monday, propped up by restored confidence in the health of the US job market and hopes for expanded fiscal stimulus in Japan.

Japan’s Nikkei Stock Average soared 3.6 per cent, and was on track to its best one-day gain in nearly three months. The benchmark rose 3.7 per cent on April 19.

Elsewhere in the region, Korea’s Kospi rose 1.3 per cent and Hong Kong’s Hang Seng Index gained 1.8 per cent. China’s Shanghai Composite Index edged up 0.7 per cent.

Shares in Japan rose after Prime Minister Shinzo Abe’s ruling coalition, led by his Liberal Democratic Party, on Sunday won more seats in the upper house to now have two-thirds majority. The coalition’s firmer grip means policy makers can more easily approve a bigger fiscal stimulus package this autumn to spur the economy.

The prospect of stimulus policies further encouraged investors, who were already in good spirits from Friday’s stronger-than-expected US jobs report that suggested the nation’s economic recovery was back on track.

“The (Japanese) economic package may get large,” Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. “It may not be that positive, but certainly not negative.”

Japanese stocks were rallying despite the yen’s stubborn strength. The currency’s gain typically stokes worries that Japanese exports won’t be as competitive abroad. But that wasn’t the case Monday, even though the yen hovered at about Y100.63 per US dollar. The dollar briefly broke below Y100 after the UK’s Brexit vote, a level not seen in three years.

“The fact that (Prime Minister Abe) got a strong majority was kind of a stamp of approval from the voters,” said Frank Benzimra, Asia equity strategist for Société Générale. “You could have some kind of mega-fiscal package to be voted on in autumn, in the same range as the stimulus that you had in 2008 to 2009. That might be one of the reasons that you see the market is strong today.”

Still, Japan’s stock rally could be brief, as a persistently strong yen could topple any upward momentum. Whether the currency eases or not is the single most important factor for Japanese stocks going forward, Ichiyoshi Asset Management’s Mr Akino said.

Meanwhile, Chinese stocks rose, led by materials and consumer staples shares, despite the yuan staying near last Thursday’s five-and-a-half-year low against the US dollar. The divergence is a contrast to last August, when stocks around the world plunged after Chinese authorities weakened the yuan and stated that it was part of efforts to let market forces determine the currency’s value.

Chinese investors also appeared to shrug off Sunday’s release of lower-than-expected consumer inflation data for June showing a 1.9 per cent rise from a year earlier, compared with May’s 2.0 per cent increase.

“Probably the markets have been so occupied by Brexit that the renminbi is now flying under the radar,” said Larry Hu, economist at Macquarie Capital, using another name for the yuan.

- Dow Jones newswires