All bets are off we may go up tomorrow
(REUTERS) Tokyo markets recover from falls on Japan poll
Tokyo markets recover from falls on Japan poll
(Updates at beginning of afternoon trading)
By Andrew Morse
TOKYO, July 13 (Reuters) - Japanese stocks and the yen
staged strong recoveries on Monday amid optimism the ruling
Liberal Democratic Party's disastrous showing in an Upper House
election would speed reform efforts.
In early afternoon trading, the yen recovered to 142.77 to
the dollar after sinking as low as 144.50. As of 0333 GMT, the
benchmark Nikkei average -- down almost two percent at one
point -- had pared losses to trade at 16,007.94, down 0.51
percent.
Japanese government bonds were slightly weaker.
While the LDP's humiliating showing -- it won 44 seats in
the Upper House, far less than 61 it had hoped for -- meant its
economic policy initiatives, including a "bridge bank" scheme
and income tax cuts, would likely be put on hold, traders said
the results could be a harbinger of more aggressive ideas for
wresting Japan from its malaise.
"The outcome presses home to the LDP that they've got to do
more and do it more quickly," said Coen Kluyver, manager of
foreign institutional equity sales at ING Baring Securities.
To be sure, equity trading had taken a generally sour tone.
Declining issues topped advancing issues 788 to 330, with 132
issues unchanged. Real estate and securities, two sectors that
were expected to benefit from the LDP's now-jeopardised
policies, were among the loss leaders.
Still, enthusiasm that the election would bring about swift
change remained high.
"The voice of the people has been heard," said Michael
Wilkins, a dealer at Credit Lyonnais. "And that is a good thing
for Japan."
Traders said the LDP-bashing in the poll, which will almost
certainly lead to the resignation of Prime Minister Ryutaro
Hashimoto, suggested the electorate was calling for fresh ideas
in dealing with a seven-year economic slowdown that has pushed
unemployment and bankruptcies to record levels.
Analysts said Foreign Minister Keizo Obuchi was the
front-runner to replace Hashimoto. His appointment as prime
minister, they said, would bring stability to the markets,
ensuring some cohesion in policy.
Other potential candidates include former Prime Minister
Kiichi Miyazawa and former chief cabinet secretary Seiroku
Kajiyama.
"The ideal policies, at least in terms of the electorate,
would be income tax cuts coupled with a cut in the consumption
tax," said Martin Foster, senior analyst at Standard & Poor's
MMS.
Hashimoto's decision to raise the consumption tax to five
percent from three percent in April 1997 is widely seen as
having triggered the current leg of Japan's economic downturn.
The yen took back ground against the dollar after an early
slide, although forex traders were quick to say the currency's
undertone remained weak.
They said the focus was now on how quickly the LDP can come
up with a replacement for Hashimoto and his cabinet.
"The market wants a leader who will take drastic measures
to solve the domestic economic problems," said a senior dealer
at a U.S. bank. "A name like Kajiyama could help the yen."
The slipping yen weighed slightly on Japanese government
bonds. The yield on the benchmark 182nd government bond rose
0.025 percentage point to 1.395 percent.
The weakening yen discourages overseas investors, as it
erodes the repatriated value of their holdings.
Although the Upper House is primarily a rubber-stamp organ,
the party's drubbing at the polls underscored widespread lack
of confidence in Hashimoto's administration, traders said.
Progress on two main policy initiatives has dominated
financial market activity over the past few weeks. A scheme to
set up bridge banks that would lend to relatively sound
borrowers of failed banks, was seen as crucial to alleviating a
credit crunch that has helped exacerbate a record spate of
bankruptices, market participants said.
Permanent tax cuts, which have been called for by domestic
critics and overseas allies, are seen as necessary to reignite
consumer spending, which has slumped since the administration
raised the nationwide sales tax.
((Andrew Morse/Tokyo Equities Desk +81-3 3432 8806
tokyo.equities.newsroom@reuters.com))
REUTERS
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