By Yuka Yamamori
Tokyo, Nov. 10 (Jiji Press)–A narrow victory of Japanese Prime Minister Junichiro Koizumi’s ruling coalition in Sunday’s general election left the stock market with little positive surprise Monday, leading bearish sentiment to prevail.
The benchmark Nikkei average dropped 124.44 points, or 1.2 pct, to finish at 10,504.54 on the day. Analysts said the election’s outcome had a neutral impact and that the market retreated as foreign hedge funds cashed in gains on banks and other high-fliers following Wall Street’s setback on Friday.
The Tokyo market has recently been susceptive to selling from hedge funds, which led the Nikkei average to rally sharply from a 20- year low hit in late April, ahead of book closings by many hedge funds scheduled for this month.
But Toshihiko Matsuno, deputy equity general manager at SMBC Friend Securities Co., said the market should closely examine whether receding buying from foreign investors is merely due to profit taking before book closings.
Foreign investors were seen to prefer Koizumi to lead the nation to proceed with his structural reform initiative to cut public spending and accelerate disposal of nonperforming loans at major banks. Thus analysts had noted that a widely expected sweep victory of his Liberal Democratic Party would work positively on the market.
In Sunday’s election, however, the LDP failed to obtain a majority in the 480-member House of Representatives, and the LDP- led ruling coalition’s strength fell to 278 seats from 287 although it maintained a majority. In contrast, the biggest opposition Democratic Party of Japan increased its seats to 177 from 137.
“The narrow contest came after optimism spread last week about the LDP’s smooth victory,” said Hiroaki Kuramochi, head of the global equities division at Credit Lyonnais Securities (Japan). “Foreign investors now take a stance to wait and see Koizumi to move forward on his structural reform, as they are concerned that the reform may be delayed.”
Echoing the view, SMBC Friend’s Matsuno noted that the market would stay neutral on Koizumi’s structural reform until fresh moves emerge. He also pointed out that possibilities cannot be ruled out that problems that have been left unsolved may give a negative impact on the market, including a possible scandal related to Japan Highway Public Corp. President Haruho Fujii.
Still, market watchers broadly aired expectations for the market’s medium-term strength backed by the nation’s solid economic fundamentals and brisk recovery of corporate earnings.
“Foreign investors are more likely to snap up Japanese stocks,” as far as the current flow of funds remains unchanged, said Kenichi Hirano, equity general manager at Tachibana Securities Co.END
