Japanese stocks fall on resignation of prime minister Abe

Japan’s stock market fell and the yen strengthened after the country’s national broadcaster reported that Shinzo Abe, the country’s longest-serving prime minister, would resign due to health concerns.

Tokyo’s Topix index reversed gains of more than 1 per cent to be down as much as 1.5 per cent in afternoon trading on Friday after NHK said Mr Abe planned to step down over his worsening health. Mr Abe confirmed in a press conference later in the afternoon that he would give up his post.

The prospect of Mr Abe’s resignation prompted concerns among investors that his signature monetary and fiscal policy programme, Abenomics, might end with his departure.

“This is probably not a good thing at all. We could have a full clear-out of people in charge,” said Nicholas Smith, Japan equity strategist at CLSA. “That could leave us with someone . . . who doesn’t have the grip Abe did and cannot hold things together to maintain the momentum on the issues the market sees as important.”

He added that the market would probably react badly to any return to “revolving door” politics — in the two decades before Mr Abe took power in late 2012, prime ministers in Japan changed at a rate of once every 17 months.

Japan’s yen, often a haven in times of geopolitical uncertainty, strengthened 0.3 per cent to ¥106.26 per dollar following the NHK report.

Mr Smith said that Mr Abe was perceived by the market as someone who had kept the yen weak relative to its fundamentals. “I think we could be hitting ¥100 per dollar at some point soon,” he said, indicating a stronger currency.

But Shuichi Ohsaki, chief Japan rates strategist for Bank of America, was more sanguine on the impact of Mr Abe’s reported departure.

“I don’t think policy will change that much,” Mr Ohsaki said, adding that Mr Abe’s successor was likely to continue his approach to fiscal and monetary policymaking.

Gold, another haven asset, was up 0.7 per cent at $1,941.55 per troy ounce.

Yunosuke Ikeda, chief equity strategist at Nomura, said the market would focus on two aspects of Mr Abe's resignation in the short term: the likely continuity of corporate governance reforms and the chances of a rapid change of leadership at the Bank of Japan. 

On governance, he said, the market would probably decide that there was unlikely to be an immediate U-turn as progress was not solely driven by Mr Abe.

“But on the BoJ, the market will now be considering the possibility of a change in central bank leadership and whether that might have a significant impact on monetary policy,” said Mr Ikeda.

Investors will also focus on the BoJ's policy of buying up to ¥12tn ($113bn) of exchange traded funds a year to support the market.

If the market believes that conditions called for a rethink on the ETF policy because stocks have rallied strongly since March, it may also decide that a new prime minister could accelerate that process, said Mr Ikeda.

The Topix finished Friday’s session down 0.7 per cent. Asian markets other than Japan rose after Wall Street closed slightly higher, with the S&P 500 ending the day up 0.2 per cent after touching a new record intraday high.

Hong Kong’s Hang Seng rose 0.9 per cent and China’s CSI 300 index of Shanghai and Shenzhen-listed stocks gained 0.8 per cent.