TOKYO -- The ruling coalition's decisive win in Japan's lower house election Sunday raised hopes for an extended market rally on continuity in economic policy.
"An election win by the ruling coalition that ensures political stability will make Japanese stocks more attractive," said Naoki Kamiyama of Nikko Asset Management. Many see increased appeal to foreigners and others from a higher likelihood of staying the course on policy.
The Nikkei Stock Average gained for a 14th straight session on Friday to end at a 21-year-high of 21,457. Eyes are now set on the next big benchmark of 22,666 -- a high marked in 1996 during a recovery from the bursting of the asset bubble. Meanwhile, some have started unloading shares on concerns of overheating.
Reaction has been more muted in the foreign exchange market, where many had already assumed that the ruling coalition would prevail. The yen ended in the mid-113 range against the dollar Friday, its weakest in roughly three months.
But profit-taking could raise the value of the Japanese currency. "Once the Nikkei index's ascent takes a breather at the beginning of the week, the yen could strengthen to about 112 against the dollar," said Osamu Takashima of Citigroup Global Markets Japan.
Focus is now shifting to economic and political developments abroad. Prime Minister Shinzo Abe's economic policies "have yielded little results, and Abenomics will no longer be lifting stock prices," said Shinichi Ichikawa of Credit Suisse Securities. Tax reform and other economic developments in the U.S. will sway markets in the future, Ichikawa predicted.
The Federal Reserve's next chair could also influence the exchange rate and equities. If U.S. President Donald Trump chooses a monetary hawk like former Treasury Undersecretary John Taylor, "the yen could quickly weaken by about 2 to the dollar," said Kengo Suzuki of Mizuho Securities.