Reelection Fuels Rally in Nikkei

The landslide election victory by Prime Minister Junichiro Koizumi fueled a broad rally in the Japanese stock market Monday, as investors bet that Koizumi now has a mandate to boost economic growth.

The Nikkei-225 stock index, which has been rallying since mid-May in part on optimism about an economic turnaround, jumped 204.39 points, or 1.6%, to 12,896.43, its highest level in more than four years.

The win gives Koizumi a mandate to accelerate spending cuts, pursue policies to boost investment and sell the nation’s postal system, which has financed what critics say are wasteful infrastructure projects that have swollen Japan’s debt level.

“Koizumi will now be able to push his reform agenda with a much freer hand, having to compromise less within his own party, within the ruling coalition and within the [parliament] itself,” said Kirby Daley, a strategist at Societe Generale Securities’ Fimat unit in Tokyo.

The stock market also was cheered Monday by the government’s report that Japan’s economy grew at an annual rate of 3.3% in the second quarter, much faster than the preliminary estimate of 1.1%.

The Nikkei index is up 12.3% year to date, compared with a 2.4% gain for the U.S. Standard & Poor’s 500 index. But because the yen has weakened against the dollar this year, the Nikkei’s gain in dollar terms is 4.3%.