Japan Stocks Rally to Three-Decade High as Suga Plans to Quit

(Bloomberg) -- Japanese stocks climbed to a 30-year high after Prime Minister Yoshihide Suga’s plan to resign spurred hope that his successor will increase stimulus spending and be more adept in handling the pandemic.

The benchmark Topix index jumped 1.6%, rising to the highest level since April 1991, while the Nikkei 225 Stock Average rallied 2.1%. Japanese stocks were Asia’s best performers as all 33 industry groups advanced on the Topix. The yen and Japanese government bonds declined. 

“This is a plus for equities -- with a new person leading, there will be expectations over policy steps,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. “It’s possible that this could be somewhat of a turning point for local equities.”

Shares saw a two-week advance on optimism that Suga’s successor -- who will lead the LDP into a general election this autumn -- will help reverse the public’s growing frustration over the government’s response to the pandemic. Suga’s only declared rival for the party leadership is former Foreign Minister Fumio Kishida, who has vowed to spend more to tackle the virus.

Japan’s equity market rallied in the first few months of Suga’s premiership, and the Nikkei 225 rebounded to 30,000 for the first time in 31 years earlier in February. Stocks were largely rangebound in the months following that feat, before record earnings expectations and rising vaccination rates fueled gains. In recent weeks, Suga had seen a series of setbacks, including a loss by one of his allies in an election for mayor of Yokohama.

“Suga’s departure will be viewed as positively, at least for now given his shortcomings,” said Amir Anvarzadeh, a strategist at Asymmetric Advisors in Singapore. “Logic prevails as LDP was bound to lose many seats in the Lower House if Suga continued, after his monumental failure on betting on Olympics and acting too slow on vaccines.” 

Suga’s slipping approval ratings have held back the Topix since the start of June as equities in the U.S. and Europe extended gains. Japan’s benchmark has gained 12% so far this year, compared with a 21% climb in the S&P 500 and a 19% advance in the MSCI Europe Index. 

“The cloud may be gradually lifting for Japanese equities in terms of the overall environment,” said Shinkin Asset’s Fujiwara. “The virus situation is calming down, while we could see political risks easing from here, compared to before.”

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