Japanese stocks plunge despite Abe victory

Japan’s prime minister Shinzo Abe is facing weak domestic business conditions

Shinzo Abe’s Liberal Democratic Party easily retained its majority in the House of Representatives (Reuters)

Japanese stock plunged to a four-week low despite Shinzo Abe's sweeping victory in his snap election on Sunday.

The Nikkei shed 1.6 per cent to close at 17,099, its lowest since November 17 as the Japanese public gave the reflationist Prime Minister’s Liberal Democratic Party a landslide victory in the general election.

The broader Topix index dropped by 1.5 per cent, with the shares of exporters punished. Toyota and Mitsubishi lost 2.5 per cent and 4 per cent respectively.

The scale of the challenge facing Abe was underlined by a survey today showing weakness in domestic business conditions.

The headline index of the Bank of Japan’s latest Tankan poll of large manufacturers slipped to 12 in December, down from 13 in September and lower than analysts had expected.

GDP data for the third quarter of the year last week showed a 1.9 per cent annualised contraction, putting Japan back in recession. Consumer expenditure has been hammered by the Abe administration’s decision to proceed with a scheduled increase in the sales tax last April from 5 per cent to 8 per cent.

Abe’s party has secured 290 seats in the House of Representatives, according to preliminary estimates. That is slightly fewer than in the 2012 election, but with coalition partner Komeito, it will still enjoy a comfortable majority.

Sean Yokota at SEB Bank said the first policy measure of the administration would be to introduce a fiscal stimulus worth 0.6-0.8 per cent of GDP to get growth back on track.