Markets give cautious verdict on Abe's "landslide" election victory

Tokyo

FINANCIAL markets delivered a highly sober verdict on Monday on what many commentators had hailed as Japanese Prime Minister Shinzo Abe's "landslide" election victory the previous day in securing a further four years in power for the governing coalition led by his Liberal Democratic Party (LDP).

Defying predictions of a rise to celebrate the continuation of "Abenomics", Tokyo stock prices dropped to a four-week low while the yen likewise defied expectations that it would fall further, in line with the Bank of Japan's (BOJ) aggressive monetary easing strategy, and rose slightly in choppy trading.

The benchmark Nikkei 225 stock average fell by 1.6 per cent to close at 17,099.40, its lowest level since mid-November, reflecting also concerns over plummeting oil prices and a weak global economy, while the yen strengthened slightly in the upper 118 to the dollar range.

The BOJ's latest tankan business survey, conducted this month and released on Monday, meanwhile showed a slight deterioration in overall business sentiment among Japanese firms compared with three months earlier, and pointed to a further drop ahead.

Financial and business sector reaction on Monday appeared to match the mood of Japanese voters who stayed away in droves from Sunday's election, leaving the overall turnout figure at a record low level of just 52 per cent.

Mr Abe insisted during a press conference at his ruling LDP headquarters that "we have heard the voice of the people saying 'Move forward with Abenomics' ", and that "Abenomics is the only way".

He also suggested during a television broadcast that Sunday's election results "show that we have received a public mandate for the Abe administration's achievements over the past two years".

Others challenged the idea that the outcome was an endorsement for Abenomics, however, with Japan expert Gerald Curtis, Burgess professor of political science at Columbia University, claiming that Mr Abe had not presented "specific policies" for voters to endorse at the election.

Rather, the vote was one of "no confidence in the (political) opposition", Prof Curtis told the Foreign Correspondents Club of Japan, echoing the sentiments of many voters who said they were voting for the ruling coalition out of a lack of any viable alternative.

The LDP and its coalition partner, the New Komeito Party, won 326 seats in Sunday's poll and thus maintained a two-thirds "super-majority", enabling the powerful lower House of Representatives to override any policy opposition from the House of Counsellors.

But with full results of the election in on Monday, it became clear that the coalition's lower-house seat total at 326 (out of 475 seats) was unchanged from before the election, while the LDP's own seat tally slid slightly to 291 seats from 295.

The main opposition Democratic Party of Japan secured 73 seats - more than expected - but DPJ leader Banri Kaeda resigned after he lost his seat, leaving the party headless. The Japan Communist Party, which often attracts protest votes, almost tripled its seats to 21 while the Japan Innovation Party won 41.

"I want to boldly implement the 'Three Arrows'," Mr Abe said after the election, referring to monetary plus fiscal stimulus to Japan's economy along with structural reforms designed to raise the efficiency and productivity of the world's third largest economy.

He promised to compile stimulus measures before the end of this year and to press Japanese business leaders to raise wages - addressing a widely levelled criticism against Abenomics, that it is benefiting the corporate sector more than wage-earners, and thus stifling consumption.

Japanese businesses - large exporters especially - have enjoyed large increases in profitability on the back of the weak yen but have remained highly cautious about distributing this in the form of increased basic pay, as well as about increasing domestic investment in Japan, analysts say.

The BOJ tankan showed that business sentiment among major Japanese manufacturing companies worsened slightly in December, with firms across a broad spectrum of nearly 10,000 firms covered by the survey expecting deterioration in coming months.

The key "diffusion" index measuring the balance of confidence among leading manufacturers stood at plus 12 in December, down from plus 13 in September - its first drop in six months. Sentiment was hit largely by higher import costs on the back of the weaker yen, the tankan showed.

The central bank's Policy Board is due to hold its latest monthly meeting on Thursday and analysts say that it will need to assess the balance of advantage between large, export-oriented firms and smaller ones focused on Japan's domestic market in deciding on future monetary policy moves.

"Concerns are emerging about the outlook" as uncertainties are increasing over the weaker yen and the recent sharp drop in crude oil prices, Kyodo News Service reported a BOJ official as saying, adding that the results underscore the mixed impact of yen depreciation.

*Abenomics gets benefit of the doubt - and a second wind