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Koizumi landslide spurs market

Nikkei rises; government reports healthy growth rate

Special Report: Japan Decides

• Assessing the economy

• Time: Can Koizumi follow through?

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TOKYO, Japan (CNN) -- A landslide election victory for Japanese Prime Minister Junichiro Koizumi's ruling Liberal Democratic Party has prompted a wave of enthusiasm among investors Monday, with the Nikkei jumping more than 1 percent in early trade.

Koizumi won an overwhelming victory in Sunday's general election, giving the 63-year-old LDP leader a clear mandate for economic, social and political reform.

Adding to the sense of economic optimism are revised figures from the government Monday showing the world's second-largest economy is growing at an annualized rate of 3.3 percent.

The Nikkei, already at a four-year high, touched 12,926.57 in early trade and is 1.50 percent ahead to 12,882.30 near the end of the morning session.

Kyodo news agency reported Monday morning that the LDP had won 296 of the 480 contested seats in a staggering triumph. That is the second-largest figure in the LDP's 50-year history.

Official results were to be announced later Monday for the hotly fought election, which saw voter turnout jump to 67.5 percent from 59.9 percent in the 2003 ballot.

The LDP's coalition partner New Komeito won 31 seats to bring the coalition's strength to 327, more than two-thirds of the 480 lower house seats.

That means the coalition will have the numbers to pass bills that have been voted down by the upper house.

The LDP picked up 84 seats from its pre-election tally of 212. The main opposition Democratic Party of Japan's presence was reduced from 177 to 113.

DJP president Katsuya Okada announced he would step down to take responsibility for the party's dismal showing.

The election had been billed as a referendum on Koizumi's reform agenda, particularly his plans for postal privatization.

He had promised to resign if his party lost. Instead, he achieved a stunning victory.

"I had hoped we would win a majority with our party alone, but we did even better than that," Koizumi said late Sunday. "I thank the nation for its support and understanding."

Koizumi insists this is his last election, and he will step down as leader when his term as LDP president expires a year from now. But the size of his win is likely to increase pressure for him to stay on.

'Clear vote for reform'

Economist Richard Jerram, Tokyo-based analyst for Macquarie Research, told CNN on Monday the result, on the back of a high voter turnout, was a "clear vote for reform."

He called Koizumi's victory "impressive" and said it could it raise positive expectations in Japan, with consumers anticipating a more dynamic economy ahead.

He said the result stripped the LDP of many of the reactionary politicians of the past.

But Jerram noted that Koizumi's first four years in office had seen little in the way of economic reform, as he concentrated on political processes.

He said Koizumi could now be more effective in pushing for deregulation, smaller government and less government spending. But he would still be battling against entrenched vested interests.

In a separate commentary Monday, Jerram said a switch of focus to economic reforms from now on could mean more aggressive spending cuts and more rapid pension reform.

"Aside from general deregulation, positive reforms could include closure, shrinkage or sale of public financial institutions, some of which lend to small firms and crowd out the private sector banks.

Jerram said loan numbers already showing a benefit from the shrinkage of the Housing Loan Corporation.

"Tax reform is another possibility, as is further pension reform," he said.

But Jerram said history had shown it was prudent to be highly cynical about the impact of political change on the economic outlook.

"As we have stressed, the current recovery is about the economy lifting out of the distress of the 1990s, first driven by exports and then with benefits from the end of bad debt problems giving a boost to the domestic economy.

"It might be that policy-led reform accelerates the process, but avoiding a mistake is all that is necessary. Any assist from economic reform would be an added bonus," Jerram said.

Assessing privatization

Government figures released on Monday show Japan's gross domestic product grew by a revised figure of 0.8 percent in the second quarter of the year, up sharply from an initial estimate of 0.3 percent. On an annualized basis, GDP grew by a revised 3.3 percent.

A major campaign issue in Sunday's election was Koizumi's attempt to privatize Japan Post, the country's postal system, which has extensive savings and insurance businesses.

While postal privatization has been Koizumi's pet project, it met resistance, even among members of his own party.

Koizumi made good on his threat to dissolve the lower house and call new elections when his effort to break up the company was thwarted in the upper house last month.

Jerram noted that various compromises had produced a messy structure and lengthy time frame for postal reform in the original bill.

"It would be more positive if the government went back to the drawing board and produced a more thorough privatization," he said.

The postal savings system is a longstanding institution but is seen by the prime minister as a wasteful vestige of a pork-barrel political system.

DJP leader Okada had urged the country to focus on concerns other than the postal service, The Associated Press reported.

Aside from pushing pension reform, the Democrats oppose Japan's deployment of troops to Iraq and criticize Koizumi's controversial visits to the Yasukuni war shrine.

Visits by Japanese political leaders to the shrine in Tokyo enrage neighboring Asian countries, which say the site glorifies Japan's militaristic past.

CNN's Geoff Hiscock contributed to this report.