DPJ win draws positive market response while uncertainties linger

TOKYO, Aug. 31 Kyodo -
The landslide election victory by the Democratic Party of Japan in the world's
second-largest economy was welcomed by investors Monday, with the key Nikkei
stock index briefly jumping more than 2 percent and the yen rising to a
seven-week high against the U.S. dollar.
Although Tokyo stocks ended the day in negative territory due to the stronger
yen which hurts Japanese exporters, analysts said the sharp rise to an 11-month
intraday high at the outset was evidence the market reacted favorably to
Japanese voters' clear choice for ''change.''
The Nikkei Stock Average surged more than 230 points soon after opening, before
losing ground to end the day down 41.61 points, or 0.4 percent, from Friday's
close to 10,492.53.
On the currency market, the yen briefly drew buying mainly from foreign
participants who welcomed the change of government in Japan, where smooth
implementation of policies had been often hampered by the divided Diet.
At 5 p.m. in Tokyo, the U.S. dollar was traded at 92.76-79 yen after hitting a
seven-week low of 92.54 yen in the morning.
''Before even having to discuss whether a DPJ administration will be better or
worse than the Liberal Democratic Party, the point is it has won a stable
majority of 308 seats that will ensure smooth passage of legislation to carry
out economic measures to its liking,'' said Makoto Haga, chief strategist at
Monex Inc.
Similarly, Hiroichi Nishi, equity division general manager at Nikko Cordial
Securities Inc., said, ''The Nikkei and broader Topix indexes both hit
year-to-date highs on a rush of 'celebratory buying' given the hope of smoother
policymaking with the parliamentary deadlock undone.''
The DPJ, which together with opposition allies already holds a majority in the
less powerful House of Councillors, captured 308 of the House of
Representatives' 480 seats, the most in postwar Japan.
Nonetheless, with the DPJ's ability to actually run an administration still
unknown, there is a strong tentative mood.
Monday's yen-buying was short-lived after the market found it difficult to keep
chasing the currency, as there are still uncertain factors such as who will be
Cabinet members and what policies will be implemented by the DPJ-led
government, analysts said.
''The market wants to see whether (the DPJ can come up with) yen-positive
factors -- a growth strategy and the promotion of fiscal efficiency,'' said
Koji Fukaya, senior currency strategist at Deutsche Securities Inc.
Meanwhile, it is possible that the yen, which has been considered safer than
other major currencies and assets, may face selling if the change of power
results in political confusion, analysts said.
''Though the market has priced in such confusion to some extent, the yen's risk
premium may increase if the situation is prolonged,'' said Yuki Sakasai,
foreign exchange strategist at Barclays Bank.
Nikko Cordial's Nishi said, ''It is often said the first 100 days are crucial,
and investors will be focusing on personnel choices and policy management.''
The stock market's attention will particularly be on who DPJ leader Yukio
Hatoyama appoints as finance minister, as well as foreign and defense ministers
who play important roles in maintaining relations with Japan's main ally, the
United States, said Tsuyoshi Segawa, equity strategist at Mizuho Securities Co.
''Until the Cabinet line-up becomes clear, basically nobody in the market right
now has a clear idea of where the DPJ will be taking us,'' Segawa said.
Hatoyama, as DPJ president, is expected to be elected new prime minister at a
special parliamentary session around mid-September.
Analysts added that uncertainty remains as to how the new government will
finance the DPJ's lofty election promises, such as monthly child allowances and
free expressways.
The tight schedule for drafting the budget by the end of December is also a
major concern, especially amid fears of the need for massive extra bond
issuance as well as discord between the DPJ and the bureaucracy, they said.
The yield on the benchmark 10-year Japanese government bond inched lower Monday
to 1.300 percent in directionless trading.
Shares of firms likely to benefit from the DPJ's key policies, which also
include promoting green technology to cut emissions, showed mixed performances
in Monday's stock market, with many sold for recent gains while others
continued to rise.
Baby goods maker Combi lost over 3 percent to 774 yen and cram school operator
Tokyo Individualized Educational Institute plunged almost 6 percent to 253 yen.
Among the winners, baby gear maker Pigeon rose almost 3 percent to 3,850 yen
while Benesse, which sells correspondence study courses for school children,
gained over 1 percent to 4,570 yen. Nippon Express, Japan's largest general
transport company, advanced over 1 percent to 416 yen.
Emphasizing the need to vitalize people's livelihoods by stimulating stagnant
private consumption and investment activities, Tokyo Stock Exchange Group Inc.
President Atsushi Saito said he hopes the new government will ''take necessary
measures'' to fully utilize the approximately 1,400 trillion yen worth of
personal financial assets.
''As we are now finally at the crossroads in emerging from the global
recession, I hope the new administration will ride on this tide to contribute
to the recovery of the world economy, redeeming our nation's prestige and
presence,'' Saito said in a statement.
==Kyodo