Tokyo stocks ended higher on Monday after Prime Minister Fumio Kishida’s assurances of his economic policy boosted sentiment, but prices remained well below a 31-year high marked in mid-September, skepticism about the new leader’s approach adding to post-pandemic concerns. growth prospects.
The 225-number Nikkei Stock Average ended up 449.26 points from Friday to close at 28,498.20, but was still 7% below its recent high. The market was also shaken by the China Evergrande Group debt crisis as well as rising long-term US Treasury yields and rising oil prices.
Market analysts say the key index is unlikely to dip below this year’s closing low of around 27,000, helped in part by the US Senate’s approval on Thursday of legislation to temporarily raise the federal government debt ceiling and avoid the risk of default.
Still, the prospect that the decline will be relatively limited will not signal a quick recovery unless market participants are fully convinced of what the new prime minister is seeking to do to rejuvenate the pandemic-stricken economy, analysts say. .
Masahiro Yamaguchi, head of investment research at SMBC Trust Bank, said while the recent selloff falters, “the market is currently unable to climb to new levels.”
Since Kishida won the leadership of the ruling Liberal Democratic Party on September 29, the Nikkei has fallen 5.1%, with an eight-day losing streak last Wednesday – the longest since July 2009 – dubbed by some the “Kishida Shock” on Social Media. He was elected Prime Minister on October 4 during an extraordinary parliamentary session.
A market fall is rare for a new prime minister, with expectations usually high that a new leader will take drastic measures to attract voters.
Kishida, who is preparing to call an election in the coming weeks, said he would aim for growth through “aggressive monetary easing, flexible fiscal spending and a growth strategy”, similar to the economic model of his Yoshihide predecessors. Suga and Shinzo Abe.
The new Prime Minister also pledged to reduce income disparities and create a virtuous circle of growth and wealth distribution as a pillar of his economic policy, but did not give details.
The market is struggling to understand how Japan can achieve growth with redistribution, analysts say.
“Prime Minister Kishida’s lack of specific economic policies is weighing on the market,” said Koichi Fujishiro, 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 spread of the coronavirus. But analysts say it remains unclear how effective stimulus will be in propelling the world’s third-largest economy.
Market players are also wary of Kishida’s plan to consider raising capital gains and dividend tax as an option to carry out his redistribution policy.
The Prime Minister said on a TV show on Sunday that he was not considering changing the tax at this time because ‘there are a lot of things we need to do before the financial income tax’, as develop a growth strategy.
Adding to these uncertainties, his cabinet’s modest approval ratings in media polls after the launch of his new government cast doubt on how effectively he will be able to implement his policies.
His cabinet’s approval ratings stood at 55.7%, down from the 66.4% and 62.0% recorded at the start of Suga’s leadership in September last year and the second round of ‘Abe in December 2012, respectively, according to a recent investigation by Kyodo News.
“Kishida will have to come up with broad-based economic policies and refrain from tax increases (on financial income) to pull stock prices out of their current slump,” Yamaguchi said, adding that to lift the market, he will have to show that he has a strong footing among voters as the October 31 general election approaches.
Market participants are also closely watching developments related to US monetary policy and the indebted Chinese property developer.
Investors are focused on “how (the U.S.) plans to ease lingering fears about rapid inflation,” said Maki Sawada, strategist in Nomura Securities Co’s investment content department.
Last month, the Federal Reserve signaled that a decision was about to start scaling back its massive bond-buying program following the recovery from the coronavirus pandemic, and hinted at an increase in interest rate from next year.
Concerns over the fate of the Evergrande Group have heightened recently following the company’s Hong Kong trading and the temporary suspension of its Evergrande Property Services Group unit.
It remains unclear whether the Chinese government will launch measures to help the property developer giant.
“The direction of the market is likely to remain uncertain until the myriad of overlapping issues are resolved,” Sawada said.
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