Asia: Yen hits seven-year low as Abe eyes snap election

Japan's Nikkei index and the cost of yen to the dollar both hit a seven-year high as the prospect arose that the country's prime minister Shinzo Abe may delay a much disliked sales tax increase and call a snap election to shore up support for his ruling Liberal Democratic Party.

The Nikkei closed up by 2.05% to top the 17,000 level for the first time since 2007 at 17,124, helped by the cost of yen continuing its recent dip to around 114.74 yen to the dollar.

Trading was also boosted by the strong performance from US indices, with the Dow setting another all-time high overnight.

Trade data from Japan showed a September current account surplus of 963bn yen, significantly higher than the 538bn yen expected and the 287bn yen print we saw in August.

Although Abe's approval rating has slipped, it is still expected that he could comfortably win another landslide election, especially if he delays the tax hike. Some analysts put the probability of snap elections as high as 50%.

Citing members of Abe's LDP party, the Yomiuri newspaper on Tuesday reported that Abe was considering a vote on 14 or 21 December after deciding on the tax move.

When questioned about the possibility of an election, a chief government spokesman did not reject the claims, insisting that a decision on an election would be Abe’s alone.

“Investors would see the anticipated no-tax-hike decision and the election as favorable developments for the stock market at a time when the Japanese economy remains sluggish,” said Kenichi Hirano, market analyst at K Asset Co cited by the Japan Times.

"Abe may be calculating that the LDP can record a similar landslide this time if he calls an election this year, before the opposition has had time to prepare itself" for an election campaign, Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, wrote in an e-mailed report today.

Abe is currently in Beijing as part of the annual Asia-Pacific Economic Cooperation (APEC) summit, where he held a first public meeting with Chinese president Xi Jinping since 2012.

Abe said afterwards that "Japan and China made the first step in improving relations by going back to the original point of a strategic relationship of mutual benefit."

Chinese social media was more focused on a faux-pas by Russian president Vladimir Putin, who gave a cheeky grin as he wrapped his coat around Xi's wife at an APEC dinner.

Whether this incident truly leads to any cooling in the diplomatic relations between the two countries is questionable, as both parties have signed an agreement at APEC for Russia to continue supplying gas to its long-time ally.