Asian Shares Rise as Japan’s Prime Minister Resigns, Markets Eye Policy Uncertainty

Asian shares mostly rose Monday, led by a strong gain in Japan’s benchmark as markets absorbed political uncertainty after Prime Minister Shigeru Ishiba announced he would step down as prime minister and head of his party.

Japan’s Nikkei 225 climbed 1.4% to 43,630.54 in morning trading, while South Korea’s Kospi rose 0.2% to 3,211.36. Hong Kong’s Hang Seng edged up 0.3% to 25,487.02 and the Shanghai Composite ticked higher by 0.2 to 25,487.02. Australia’s S&P/ASX 200 was an exception, slipping 0.3% to 8,845.50.

Analysts said Ishiba’s announcement, long expected, may remove a period of prolonged uncertainty once the ruling Liberal Democratic Party holds its leadership election, though the immediate outlook is for a lame-duck administration. "Markets may react short-term to the temporary uncertainty of lame-duck leadership, but this may resolve once a new leader is chosen. Meanwhile, the LDP’s position as a minority leading party is unlikely to change anytime soon, and as such compromise will be the name of the policy-making game," said Naomi Fink, chief global strategist at Amova Asset Management.

Ishiba’s resignation sets up a contest within the LDP, with several legislators already positioning themselves as candidates. A leadership vote will determine the next party head and, typically, the next prime minister, keeping markets attentive to potential shifts in fiscal and economic policy.

Adding to the domestic backdrop, Japan’s Cabinet Office revised first-quarter growth sharply higher, saying the economy expanded at a seasonally adjusted annualized rate of 2.2%, up from an earlier estimate of 1.0%. The office attributed the upward revision to stronger consumer spending and larger inventory contributions than previously measured.

Global markets also reflected mixed signals from the United States where stocks finished the previous week lower. The S&P 500 erased an early gain and closed about 0.3% below the record it set the day before. The Dow Jones Industrial Average fell 220 points, or 0.5%, after wide intraday swings, while the Nasdaq was down marginally by less than 0.1%.

A Labor Department report showed American employers hired fewer workers in August than economists had expected and that earlier estimates for June and July overstated hiring by about 21,000 jobs. Traders interpreted the softer employment data as increasing the likelihood of a Federal Reserve interest-rate cut at its Sept. 17 meeting, with markets pricing in near-certain odds of a reduction.

Commodity and currency markets were steady to firmer. Benchmark U.S. crude rose 74 cents to $62.61 a barrel, and Brent crude gained 80 cents to $66.30 a barrel. The U.S. dollar strengthened slightly against the yen to 148.20 from 147.39, while the euro slipped to $1.1709 from $1.1723.

Investors in the region will monitor developments in Tokyo’s party contest and any policy signals from prospective LDP leaders, as well as further U.S. economic data that could influence global interest-rate expectations and risk appetite.