SYDNEY: The Nikkei dived on Monday amid concerns that Japan’s new prime minister favored normalizing interest rates. The Nikkei led the early action with a dive of 4.6 percent as investors anxiously waited for more direction from new Prime Minister Shigeru Ishiba, who has been critical of the Bank of Japan’s easy policies in the past. However, he sounded more conciliatory over the weekend saying monetary policy “must remain accommodative” given the state of the economy.

“Ishiba has endorsed the BoJ’s intention to normalize monetary policy, albeit leaving it uncertain as to the pace and timing,” said HSBC economist Jun Takazawa. “If additional stimulus measures are realized, this would also likely buttress the recovering trend in spending, thereby strengthening the BoJ’s conviction to raise interest rates at a gradual pace,” he added. “All in all, we continue to see a constructive outlook for Japan.”

The Japanese yen was also in focus as Ishiba, a former defense minister who last week won the leadership of the ruling Liberal Democratic Party, said he would call a general election for October 27. The yen surged on Friday, and edged out to a one-week high of 141.65 per dollar in the Asian hours, but further moves were limited after Ishiba made his remarks on interest rates.

Analysts said that was enough to pause the sharp rise in the yen following Ishiba’s victory and that a snap election could weigh on the yen at least over the short term. “An election basically takes the Bank of Japan out of the equation until December ... a marginal yen negative,” said Ray Attrill, National Australia Bank’s head of foreign exchange strategy. The dollar was last up 0.17 percent at 142.45 yen. — Reuters