Japan Shares Climb After Abe’s Coalition Wins Elections

Japanese shares rose, with the Topix (TPX) index climbing for the fifth time in six days, after Prime Minister Shinzo Abe's ruling coalition solidified control of parliament in elections yesterday.

NEC Corp. jumped the most on the Nikkei 225 Stock Average on a report the computer manufacturer will form a server partnership with Hewlett-Packard Co. Nippon Paint Co. (4612) surged to its highest in 23 years after the maker of automotive and household coatings raised its profit forecast. Mitsubishi Heavy Industries Ltd. dropped 4.1 percent after Southern California Edison Co. said the Japanese machinery maker breached a contract on a generator. Yaskawa Electric Corp. sank 3.9 percent after Credit Suisse Group AG downgraded the motor maker's shares.

The Topix climbed 0.4 percent to 1,216.53 at the close of trading in Tokyo, after falling as much as 0.4 percent earlier. Volume was about 18 percent below the 30-day average. The Nikkei 225 added 0.5 percent to 14,658.04.

"Considering there was no surprise from the election, it's hard to have a particular position either way on a short-term basis," said Nobuyuki Kashihara, who helps oversee $26 billion at Mizuho Asset Management Co. in Tokyo. "However, at least the fact that Abe's administration will be stable is a positive factor for stocks. From now on the focus will be on the realization of his growth strategies as well as the U.S. economy, domestic earnings. But stocks are likely to slowly advance."

The upper-house election victory gives Abe's ruling coalition a majority in both houses of parliament, enabling faster policy making as it seeks to deliver on promises for structural reforms. The Liberal Democratic Party-led government controls both legislative chambers for the first time since 2007 and need not face another election for three years.

Overwhelming Victory

"The government has the stability to implement its growth strategy," said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., Japan's fifth-largest lender by market value. "Investors are taking the election results as good news and buying individual shares that will benefit. The stronger yen is weighing on gains."

After plunging as much as 18 percent from a May 22 high, the Topix rebounded amid optimism Prime Minister Shinzo Abe will push through reforms following the polls. The gauge added 15 percent over the past five weeks, the biggest such advance since April 2009.

Investor attention will now shift to whether the government will cut corporate taxes, ease regulations, loosen labor laws and join the Trans-Pacific Partnership free-trade agreement.

Sales Tax

Another focus will be whether to raise the consumption tax as planned in April 2014 to rein in Japan's fiscal deficit and national debt. Abe wants to make a decision on the tax this autumn, he said on TV Asahi on July 21. Finance Minister Taro Aso said a decision will be made around October.

"We all thought he would win, so it's now all about the implementation, being committed to the economy and the move forward," said Stuart Beavis, head of institutional equity derivatives at Vantage Capital Markets in Hong Kong. "Abe has been nothing but vague on the 'Third Arrow.' The market wants to see details. The easy part is over."

NEC jumped 4.2 percent to 246 yen, the biggest gain on the Nikkei 225. The Japanese computer maker, which gets most of its revenue from Japan, will announce partnership details with Hewlett-Packard after completing preparations, NEC spokesman Seiichiro Toda said by phone today, without giving a timeframe.

Nippon Paint

Nippon Paint jumped 6.6 percent to 1,318 yen, its highest level since March 1990. The Osaka-based company raised its net-income forecast by 21 percent to 25.5 billion yen for the year ending March 2014.

Among shares that fell, Mitsubishi Heavy dropped 4.1 percent to 608 yen, the biggest drop on the Nikkei 225. Southern California Edison served a Notice of Dispute, saying Mitsubishi Heavy should take responsibility for allegedly providing a defective steam generator to the U.S. company. Mitsubishi Heavy said it disputes the claim and has "appropriately" fulfilled the contract.

Yaskawa Electric (6506) sank 3.9 percent to 1,221 yen. The Kyushu-based company, which is up 48 percent this year, was cut to neutral from outperform by Credit Suisse. The brokerage cited a "slowdown in monthly order momentum, particularly for servomotors" and said it was awaiting new earnings drivers.

The Topix traded at 1.31 times book value today, compared with 2.49 for the S&P 500 and 1.69 for the Stoxx Europe 600 Index yesterday. The gauge's 30-day historic volatility was at 25.93 today, down 40 percent from its July 2 high of 43.22.