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Asia Markets
Japan Stocks Fall After Abe's Big Win
From the Wall Street Journal of Sun, 14 Dec 2014 20:27:56 EST
Prime Minister Shinzo Abe and his Liberal Democratic Party colleagues watch the results of the lower house election at LDP headquarters on Dec 14, 2014, in Tokyo.
Prime Minister Shinzo Abe and his Liberal Democratic Party colleagues watch the results of the lower house election at LDP headquarters on Dec 14, 2014, in Tokyo. Zuma Press

TOKYO—Investors in Japanese stocks are growing wary of risks to Japan’s traditionally export-driven economy amid sings of slower global growth, despite Sunday’s clear win for Prime Minister Shinzo Abe, who has been leading aggressive economic reforms.

The Nikkei Stock Average is down 0.7% Monday after the Dow Jones Industrial Average last week logged the biggest weekly loss since 2011 amid global growth concerns.

Japan’s ruling Liberal Democratic Party and its coalition partner won a decisive victory in an election touted as a referendum on Mr. Abe’s plan to defeat 15 years of deflation and revitalize the economy. Mr. Abe’s victory is generally considered a good thing for Japanese stocks.

Still, the global landscape presents headwinds, at least in the near term. Crude-oil prices are at multiyear lows, partly due to waning demand that is seen as a sign of slower global growth. That is bad for Japan’s traditionally export-dependent economy, and last week sent U.S. stocks sharply lower. Toyota Motor Corp. is down 1.3%. TDK Corp. is 0.5% lower.

“Overseas markets look terrible,” said Yusuke Sakai, senior stock trader at T&D Asset Management Co., which manages ¥1.9 trillion ($16 billion) in assets. He said the Japanese stock market is in a tug of war between good domestic news—Abe’s re-election—and bad market conditions overseas.

Investors also say Mr. Abe needs to present more concrete, detailed growth plans and make more progress on his promised structural changes, such as overhauling the labor market. The Bank of Japan ’s monetary easing and yen weakness will only carry the Japanese economy so far, they say.

“We need to see a blueprint for corporate tax cuts, labor law changes, special economic zones and various other growth strategies,” said Takashi Hiratsuka, a trading group leader at the asset-management division of Resona Bank, which manages ¥17 trillion ($144 billion) of assets.

To be sure, Mr. Abe has made progress since coming to power in late 2012. Thanks in part to the BOJ’s powerful stimulus, the yen has weakened sharply and inflation has picked up, though it has been weakening in recent months. In addition, many Japanese companies are starting to focus more on capital efficiency and are returning more money to shareholders, partly at the government’s urging.

“I have no doubt that the economy is in a recovery trend if you look at the long run,” Takahiro Mitani, president of Japan’s Government Pension Investment Fund, said in an interview Friday.

According to data from MSCI Inc. ’s world index for developed markets, Japanese stocks have returned 12.3% this year, better than the 11.6% return for the overall index, assuming dividends are fully reinvested. That follows two consecutive years of Japanese outperformance over the index.

The yen was trading higher, with the dollar at ¥118.24 in Asian morning trade after an initial dollar rise to ¥119.13, compared with ¥118.82 late Friday in New York, according to EBS. The yen lost a third of its value since late 2012 when Mr. Abe started campaigning to for prime minister on promises of defeating deflation.

Trading is likely to be volatile ahead of the conclusion of the U.S. Federal Reserve’s two-day policy meeting on Wednesday. The U.S. central bank could give a stronger indication of plans to raise interest rates in the coming months. A period of extraordinary easing supported stocks and helped the U.S. economy recover following the global financial crisis.

“U.S. economic indicators have been good since the [U.S.] jobs data [earlier this month]. The dollar/yen will likely continue on a rising trend,” said Osao Iizuka, head of foreign-exchange trading at Sumitomo Mitsui Trust Bank.

There are some signs of stress in the markets. The BOJ’s aggressive government bond-buying and the resulting rock-bottom yields drove some participants away. The benchmark 10-year Japanese government bond yield fell to 0.385% Monday from Friday’s 0.395% on some safe-haven demand as stocks retreated.

Some neighboring Asian countries are wary of the yen’s weakness, particularly Korean auto and electronics makers that compete directly with Japanese firms in the global marketplace. The yen’s weakness gives Japanese exporters a trade advantage over their rivals.

Write to Kosaku Narioka at

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