Nikkei rises 0.7 pct as Abe's election win boosts economic recovery hopes

Sun Jul 21, 2013 9:44pm EDT

* Domestic-demand sensitive shares rise
    * Abe's victory widely-expected, but positive for market -
analysts
    * Exporters underperform as dollar trades below 100 yen

    By Ayai Tomisawa
    TOKYO, July 22 (Reuters) - Japan's Nikkei share average
rebounded on Monday after Prime Minister Shinzo Abe's ruling
bloc and its coalition partner regained control of the upper
house in an election, boosting hopes for a sustained economic
recovery.
    The Nikkei rose 0.7 percent to 14,694.95 in mid-morning
trade, after rising as high as 14,770.02 at the open.
    Of the Topix's 33 subsectors, 27 are in positive territory,
with domestic-demand sensitive shares leading the gains.
    "Hopes that Abe will pull the country out of deflation are
lifting retail shares on expectations that their sales will rise
on increasing consumption," said Hiroyuki Fukunaga, chief
executive of Investrust. "People's interests are shifting to
earnings at the same time." 
    ABC-Mart Inc rose 1.7 percent, J.Front Retailing Co
 gained 0.7 percent, while Fast Retailing Co 
added 1.9 percent.
    "ABC-Mart and J.Front Retailing may rise further in the
mid-term, but Fast Retailing's gains may be limited as investors
had overly high expectation" on its results, Fukunaga said,
noting that the company did not raise its full-year profit
outlook. 
    Fast Retailing, which reported its third-quarter results for
the year through August earlier this month, left its operating
profit outlook unchanged at 147.50 billion yen as well as sales
of 1.103 trillion yen.
    Exporters underperformed as the dollar is trading below 100
yen, with Toyota Motor Corp down 0.2 percent, Nissan
Motor Co falling 0.1 percent and Toshiba Corp 
shedding 0.2 percent.
    The Topix gained 0.3 percent to 1,215.98.
    
    STRUCTURAL REFORM EYED
    "Abe's victory was widely expected, but it gives a positive
lead to the market as it raises expectations that legislation
will pass more easily and he can focus on reviving the economy,"
said Takuya Takahashi, a strategist at Daiwa Securities.
    He said that foreigners are encouraged that the Abe
administration will be the first stable government since popular
Junichiro Koizumi left office in 2006.
    "The likelihood that there will be no national election for
the next three years is positive. What investors are looking for
is a stable government and they are watching how Abe can tackle
deflation," Takahashi said.
    Abe's victory in Sunday's elections means an end of "twisted
parliament" in which the opposition controls the upper chamber,
allowing him to focus on structural reforms to end stagnation in
the world's third-largest economy.
    Public broadcaster NHK said early on Monday that Abe's
Liberal Democratic Party (LDP) and its partner, the New Komeito
party, had won at least 74 of the 121 seats up for grabs in the
242-seat upper house. 
    Abe's fiscal expansionary policy, coupled with the Bank of
Japan's aggressive monetary stimulus, has pushed the benchmark
Nikkei up around 40 percent this year, while the yen has fallen
15 percent against the dollar.
    Market observes said the prospect of the Nikkei extending
gains stably after the election will depend on whether Abe can
implement drastic structural reform.
    Jesper Koll, director of equities research at JP Morgan in
Tokyo, said that Abe seems to be fully aware that although
monetary and fiscal stimulus may deliver a strong cyclical
upturn, a true structural upturn requires fundamental changes in
Japan's regulatory framework.
    "For a permanent rise in returns and productivity, the
factors of production-land, labor, capital-need to be
re-allocated. This is what the 'third arrow' of Abenomics is
about," Koll wrote in a note.