Stock in Japan reverse course and surge on fiscal stimulus hopes

Investing.com - Stocks in Tokyo reversed course and surged on Tuesday, recovering from the biggest one-day rout this year as expectations for stimulus measures in Japan rose a day after the country reported that its economy slid into recession.

The Nikkei 225 gained 1.8% at 17283.64 early Tuesday, after falling 3% in the previous session.

Prime Minister Shinzo Abe is expected to delay a scheduled sales-tax increase on Tuesday, dissolve the lower house on Wednesday, and hold a general election on Dec. 14, currency analysts at Barclays wrote in a research note.

The U.S. dollar traded at its highest level against the yen in more than seven years. It rose to as high as ¥116.74 in early trading in Asia, from ¥116.63 late Monday in New York.

Tokyo led the gains in Asia where the Kospi benchmark gained 1.0%.

Investor sentiment in the region was also propped by comments from European Central Bank President Mario Draghi, who indicated a willingness to take additional easing steps to prevent deflation in the eurozone.

In China, futures on the Hang Seng Index wavered near the flat line. The market there is headed for its second day of trading under a new trading scheme that connects it to the Shanghai market. Global investors are expected to continue snapping up stocks on the mainland, after quickly hitting the daily quota limit of $2.1 billion yesterday.

Overnight, U.S. stocks ended Monday mixed to higher after dovish comments from European Central Bank President Mario Draghi offset news that Japan unexpectedly fell into a recession last quarter.

The Dow 30 rose 0.07%, the S&P 500 index rose 0.07%, while the Nasdaq Composite index fell 0.37%.

European Central Bank President Mario Draghi said earlier that policymakers will do what it takes to bolster the European economy, which offset news of Japan's recession.

Draghi said "unconventional measures" needed to ensure recovery could involve the purchases of sovereign debt, a monetary policy tool otherwise known as quantitative easing that aims to suppress long-term borrowing costs to spur recovery, with stocks rising as an intended side effect.

The ECB’s current stimulus program includes purchases of asset-backed securities and covered bonds.

Official data released earlier revealed that Japan’s gross domestic product contracted by an annualized 1.6% in the third quarter following a 7.3% drop in the preceding quarter, which puts the country in a recession.

Economists were forecasting a 2.3% growth rate.

Separately, Japanese Prime Minister Shinzo Abe was expected to postpone a planned sales tax increase due to come into effect next year after a sales tax hike in April of this year acted as a drag on growth.

The prime minister was also expected to call for snap elections which could take place as soon as next month.

The news rattled nerves by stoking fears headwinds may be building and slow the global economy and water down U.S. recovery.

On Tuesday, the U.S. is to release data on producer price inflation.