Tokyo's Nikkei share average reversed losses to end higher on Monday as the market took in stride the defeat of a key government bill to privatise the giant postal system, and likely general election. Toyota Motor Corp, the most active issue by value, and other companies with good earnings prospects, such as Sumitomo Rubber Industries Ltd and Ibiden Co, a maker of integrated circuits, were in favour.
A partner in Japanese Prime Minister Junichiro Koizumi's coalition government said late on Monday that Koizumi would call an election for September 11. Parliament's upper house earlier rejected the bills which were the core of Koizumi's reforms.
Analysts said the spectre of political confusion in the world's second-biggest economy had largely been factored into share prices when the Nikkei fell a total 1.8 percent in the previous two sessions, and the market has moved its focus to the strength of the economy ahead of key data due later this week.
Japan is set to release machinery orders figures for June on Tuesday, followed by gross domestic product numbers for April-June on Friday. The Nikkei touched 12,000 for the first time in 15 months on Wednesday last week.
The Nikkei ended Monday up 0.11 percent or 12.5 points at 11,778.98. It recovered 1.27 percent from a low of 11,630.75 struck soon after the rejection of the postal bills.
The broader TOPIX index was up 0.23 percent at 1,191.90.
"The market has left behind the vote and a general election and is quickly shifting its focus to the strength of the economy," said Koji Muneoka, vice president at J.P. Morgan Securities Asia.
"An expected political vacuum is not something the market is afraid of," Muneoka said. There is no urgent domestic issue on the table, and even if the opposition Democratic Party forms a coalition government, the key policy issues are the same as before, including pension reform, he added.
Some analysts also said that politics now had a smaller impact on the economy - unlike in the 1990s when the economy depended largely on government stimulus measures.
"Uncertainty surrounding the election could put a lid on the upside. But certainly, there are people who want to buy against the backdrop of a healthy economic recovery," said Kazuhide Hayashi, deputy general manager at Norinchukin Zenkyoren Asset Management.
"In short, politics has little to do with the market."
Nikon Corp may come under the spotlight on Tuesday. After the market closed, it said its quarterly operating profit more than quadrupled, helped by strong sales of high-end digital cameras, and raised its full-year forecast. Ahead of its results, the company's stock climbed 1.71 percent to 1,248 yen.
Mitsubishi Estate Co and specialty chip maker Rohm Co are among the blue chip firms to announce quarterly earnings on Tuesday.
Economic data will also be in focus.
A Reuters poll of economists produced a median forecast for a 6.1 percent rise in core machinery orders from the previous month. In May, core orders fell 6.7 percent. The highly volatile figure is regarded as a leading gauge of capital spending.
On Monday, Toyota Motor, the world's second-biggest auto maker, reversed morning losses and rose 0.7 percent to 4,200 yen. Rival Nissan Motor Co climbed 1 percent to 1,156 yen.
But investors sold off NTT DoCoMo Inc, Advantest Corp and other recent gainers.
NTT DoCoMo, the country's largest mobile phone operator, fell 1.1 percent to 180,000 yen. It had gained in recent sessions after reporting higher-than-expected quarterly earnings.
Chip-testing device maker Advantest, which has also made broad gains in recent weeks due to its earnings, lost 1.2 percent to 8,860 yen.
Mitsui Engineering & Shipbuilding Co fell 1.8 percent to 218 yen after it widened its estimated group net loss for the six months to September, due to high materials costs.
Electronics parts maker Ibiden extended gains for a third day, soaring 8.2 percent to 3,690 yen after a brokerage upgrade on its earnings estimates and target price for the company.
Sumitomo Rubber, which manufactures automobile tyres, climbed 4.1 percent to 1,140 yen after the company lifted its first-half profit estimate due to stronger-than-expected demand for new cars.
Trade volume fell for the third straight session, with 1.55 billion shares changing hands, although that was still higher than last year's daily average of 1.45 billion shares.
Decliners squeaked past advancers, 766 to 762.
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