Japan's Abe worries China with island talk

Japan's new PM declared there will be no compromise over disputed islands in the East China Sea. Source: AAP

INCOMING Japanese prime minister Shinzo Abe, boosted by his sweeping election victory, has declared there will be no compromise on the sovereignty of islands at the centre of a dispute with China.

China reacted with alarm to Abe's victory, after his conservative Liberal Democratic Party (LDP) crushed opponents in national polls and he immediately restated Tokyo's claims.

"The Senkaku islands are Japan's inherent territory," Abe told reporters on Monday, referring to an archipelago Beijing calls the Diaoyus.

"Japan owns and controls the islands ... under international law. There is no room for negotiation on this point."

Beijing says it's ready to work with Japan on "further development of stable relations" but is alarmed by Abe's stance.

"We are highly concerned about which direction Japan will take," foreign ministry spokeswoman Hua Chunying said at a regular briefing.

At home, Abe's large electoral margin boosted hopes for Japan's troubled economy, with investors pushing up stocks on Monday as the painfully high yen eased.

Abe has vowed to put the economy back on track after years of deflation, made worse by a soaring currency that has squeezed exporters.

Topping his agenda is a promise to pressure the Bank of Japan into more aggressive easing policies aimed at kick-starting growth as the world's third-largest economy slips into recession.

All eyes will be on the bank's policy meeting this week to see whether central bankers move in line with Abe's wishes.

His win also stoked speculation that whoever is appointed to replace BoJ governor Masaaki Shirakawa next year will favour a more aggressive easing stance.

Investors are increasingly betting on some action, with the yen tumbling against the US dollar and euro on Monday while Tokyo's Nikkei 225 stock index surged 0.94 per cent by the close.

Voters on Sunday dumped Prime Minister Yoshihiko Noda three years after his Democratic Party of Japan (DPJ) promised a change from more than half a century of almost unbroken LDP rule. The result cost Noda his party leadership.

The LDP and its junior coalition party New Komeito have secured a large enough majority in the lower house of the Diet (parliament) to overrule the upper chamber.

Brokerage giant Nomura said Abe's victory is likely to fuel expectations, particularly among foreign investors, of more expeditious policy-making.

Fukushima plant operator TEPCO was a big winner on Monday, with its shares rocketing 33 per cent, leading the charge by energy firms as investors cheered the likely end to an earlier attempt to abandon atomic power in Japan.

However, analysts say the LDP's victory came by default - with voters disenchanted by the DPJ after three years of flip-flops, policy missteps and diplomatic drift, but having little faith in any of the alternatives.

With turnout at a record low even Abe acknowledged the outcome was not a ringing endorsement.

"I think this result means a 'no' to the political confusion of the DPJ. People will be strictly watching if the LDP will be able to live up to expectations."

Abe is expected to be elected as premier by fellow MPs when parliament meets for a special session on December 26.

His offer to boost spending on infrastructure was popular with voters in the northeast, where the devastation of the March 2011 tsunami is still evident.

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