Japanese stocks touch 7-yr peak on talk of tax hike delay

Thursday, 13 November 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Japanese stocks scaled seven-year highs on Wednesday, putting the rest of Asia in the shade, amid expectations that Prime Minister Shinzo Abe will postpone a planned sales tax hike to avoid damaging a fragile economic recovery. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1%, after US indexes ended a holiday-thinned session flat, and financial spreadbetters expected the uninspired mood would carry over into Europe.

Britain’s FTSE 100 and France’s CAC 40 were expected to open down 0.1% and Germany’s DAX was seen down 0.2%, with the banking sector in focus after global regulators fined five major banks for failings in currency trading. The regulators imposed penalties totalling $ 3.4 billion on UBS, Citigroup, HSBC, Royal Bank of Scotland and JP Morgan. “Once again investors are looking towards some fairly positive company results, and it is this, in the absence of any other negative influences, which are helping to underpin markets at the moment, along with the propensity for US markets to continually make record highs,” Michael Hewson, chief strategist at CMC Markets in London, said in a note. The Shanghai Composite Index added 1% in volatile trading, building on its surge this week after the announcement of a tie-up that will give global investors easier access to China’s $ 3.9 trillion stock market beginning from next Monday. Japan’s Nikkei stole the spotlight for most of the session, jumping to a fresh seven-year high after local media said that Abe will postpone a planned tax increase and call a general election for December in an effort to lock in his grip on power before his voter ratings slide further. The Nikkei pared gains and ended up 0.4%. Abe has said he will make up his mind on the tax increase after assessing July-September GDP data due next Monday. It is widely expected to highlight the fragility of the rebound following a sharp contraction in the second quarter. The first increase in the two-stage sale tax hike in April knocked the Japanese economy hard, and markets view a delay in the second-phase of the tax hike as positive for growth. A snap election could cement Abe’s grip on power because opposition parties are too fragmented to win, despite a decline in the prime minister’s approval ratings. “Short-term players are jumping onto this, although in the long run, this just means a delay in fiscal reform and is not necessarily positive,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. The yen, which has remained under pressure for nearly two years due to the BOJ’s aggressive stimulus spending, gained against the greenback, which traded at 115.37 yen, down about 0.4% on the day after marking a seven-year high of 116.11 yen on Tuesday. Some suggested the yen could come under renewed pressure if Abe were to call an election and emerge victorious. “Deteriorating fiscal discipline is of course a concern, but it is a mid- to long-term matter. Expectations towards further equity market gains is a key factor weighing on the yen at the moment,” said Masashi Murata, a senior currency strategist at Brown Brothers Harriman in Tokyo. The euro traded at $ 1.2484, up about 0.1% on the day and edging away from a two-year low of $ 1.2358 hit on Friday. The dollar index was steady at 87.504, not far from last Friday’s high of 88.190 - a peak not visited since June 2010. In commodities markets, crude oil continued to drop amid fears of a supply glut, with Brent shedding about 0.9% to $ 80.93 a barrel. US crude fell 0.9 to $ 77.25. Spot gold added about 0.2% to $ 1,166.90 an ounce, though the dollar’s recent strength weighed on its upside.