Tokyo stocks plunged on strong yen and PM election

Stocks plunged in Tokyo on Monday after the yen surged in reaction to Shigeru Ishiba's election last week as the head of Japan's ruling party, which boosted expectations the Bank of Japan will continue hiking interest rates.

However, Hong Kong and Shanghai extended their surge as traders cheered more moves by Chinese authorities to revive the country's battered economy with more support measures for the crucial property sector.

Exporters were the big losers in Tokyo after the yen's spike to around 142 per dollar in reaction to Ishiba's win, which observers said would mean the central bank will likely press on with its campaign of monetary tightening.

But while Ishiba is expected to maintain many of his predecessor Fumio Kishida's policies, he has also said "there is room for raising the corporate tax," while promising to revitalise rural regions.

"Our view is that the basic economic policy philosophy will not change," said Masamichi Adachi, UBS Securities chief economist for Japan.

"More specifically, business- and market-friendly policies are likely to be maintained. Still, Ishiba is likely to pursue fiscal consolidation and monetary policy normalisation, allowing the BoJ to continue to pursue policy normalisation."

The yen held its gains yesterday, dealing a blow to exporters such as Sony and Toyota, while SoftBank was also well down.

Oil prices edged up as traders keep a close eye on events in the Middle East amid fears of a wider conflict as Israel strikes Hezbollah targets in Lebanon, Huthi rebels in Yemen and keeps up its bombardment of Gaza.