(Bloomberg) — Japan’s Nikkei 225 Stock Average headed for a full recovery from an August rout, as a Liberal Democratic Party leadership contest narrowed down to two candidates.
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The blue-chip gauge extended gains to as high as 39,777.33, surpassing its close on July 31, the day the Bank of Japan hiked its policy rate to around 0.25% and unveiled plans to halve bond purchases. Exporters got a boost as the yen slid more than 1% against the dollar as the LDP contest turned into a run-off election between Sanae Takaichi and Shigeru Ishiba.
The broader Topix index rose 0.3% to 2,730.27. The index saw more than 1,100 companies traded without rights to the next dividend, shaving about 25 points off the benchmark.
Tech companies such as Tokyo Electron Ltd. climbed as the yen weakened against the dollar. Firms with China exposure, such as Yaskawa Electric Corp. and Fanuc Corp. were among top performers after China’s top leaders ramped up efforts to revive growth.
“Risks of the BOJ being pushed to the dovish side are weighing on the yen now, but we have to remember that narrowing of the yield differentials, which is a key driver for yen, will likely remain Fed-driven and in favor of the yen,” said Charu Chanana a global markets strategist at Saxo Markets. “Japanese stocks have tech momentum, China stimulus and now a weaker yen working in their favor. Long-term it may still be prudent to remain focused on thematic plays such as corporate governance reforms or geopolitical flows.”
Easing concerns over a tighter monetary policy has the Nikkei 225 on track for a three-week rally of more than 8%. On Tuesday, Governor Kazuo Ueda reinforced his message that while the central bank will raise its key interest rate again if data allow, it won’t be in a hurry to do so.
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