Tokyo: Japanese share prices rose 0.49% in morning trade on Tuesday as investors digested news of Prime Minister Yasuo Fukuda’s sudden resignation as the economy sinks toward recession.
Dealers said his decision to call it quits had added to political uncertainty in Asia’s largest economy, but the impact on economic policy is likely to be limited because parliament is already in deadlock.
The Tokyo Stock Exchange’s benchmark Nikkei-225 index was up 63.11 points at 12,897.29 by the lunch break. The broader Topix index of all first-section shares gained 8.10 points or 0.66% to 1,238.74.
Fukuda’s surprise announcement late on Monday came after the 72-year-old political moderate failed to reverse a slump in his popularity despite reshuffling his cabinet and unveiling a major economic stimulus package.
“The political uncertainty may add volatility to the market in the short term,” warned Kenichi Kawsaki, chief economist for Lehman Brothers in Tokyo.
“However, we do not expect economic policies to change significantly as a result of a change in the prime minister,” he said.
Many investors had been disillusioned about the prospects for further reform of Asia’s largest economy given the legislative deadlock and signs that the ruling party is more concerned about wooing voters ahead of the next election, due by September 2009 at the latest.
The market’s gains appeared to be the result of position-squaring and a drop in oil prices rather than a positive reaction to Fukuda’s resignation, he said.
Until recently Japan’s economy, the second-biggest in the world, had been recovering from a slump stretching back more than a decade.
But a contraction in the second quarter of this year has left the country teetering on the brink of its first recession in six years.
Fukuda’s resignation came after a year of bitter fighting with the opposition, which has sought to block key legislation. The ruling party will now hold an internal election to determine a successor.
Former foreign minister Taro Aso, seen by many as the front-runner for the job, is likely to push for increased government spending to support the economy if he takes office, analysts said.
Fukuda’s resignation had little impact on the Japanese currency.
The dollar was at 108.19 yen in Tokyo midday trade, against 108.18 in London late on Monday, when US markets were closed for the Labour Day holiday.