Japan’s Nikkei extends decline as rally loses steam

Japan’s Nikkei share average fell for a second straight session on Friday as investors took a breather from a rally driven by hopes for more fiscal stimulus.The Nikkei fell 0.32% to 53,936.17, while the broader Topix fell 0.28% to 3,658.68. The two indexes rose almost 4% this week after a report last weekend that Prime Minister Sanae Takaichi could dissolve parliament this month and call a general election in February. The secretary general of the Liberal Democratic Party confirmed the report on Wednesday.

Over the month so far, the Nikkei and Topix are up more than 7%.

“The market took a pause after this week’s sharp gains. Today’s declines are a small adjustment to reflect that sentiment… The overall picture has not changed,” said Kazunori Tatebe, chief strategist at Daiwa Asset Management.

“The market has taken into account the best political scenario in which the LDP increases its seats in the elections and Takaichi receives support for spending plans that the stock market has high expectations for.”

But there were some uncertainties about the election outcome, such as the discrepancy between the support rate for Takaichi and the LDP, Tatebe said. On Thursday, the main opposition party, the Constitutional Democratic Party of Japan, and Komeito agreed to form a new political party in an effort to form a united front against the LDP.

Among individual stocks, Uniqlo owner Fast Retailing fell 2.12%, dragging the Nikkei down the most. Chip equipment manufacturer Tokyo Electron fell 1.03%. Chip testing equipment manufacturer Advantest rose 1.38% and fiber optic cable manufacturer Fujikura gained 2.37%.

Consulting firm Baycurrent was the biggest loser on the Nikkei in percentage terms, with a decline of 8%. Of the more than 1,600 stocks trading on the main market of the Tokyo Stock Exchange, 59% rose, 37% fell and 2% were flat.