Nikkei closes up 2% to 7-year high on talk of delay in planned sales tax hike, snap election

Pedestrians stand in front of stock market boards along the pavement in Tokyo on Nov 4, 2014. Japan's Nikkei share average hit a seven-year high on Tuesday as speculation swirled that Prime Minister Shinzo Abe may postpone a planned sales tax in
Pedestrians stand in front of stock market boards along the pavement in Tokyo on Nov 4, 2014. Japan's Nikkei share average hit a seven-year high on Tuesday as speculation swirled that Prime Minister Shinzo Abe may postpone a planned sales tax increase and call a snap election to bolster his political standing. -- PHOTO: AFP

TOKYO (Reuters) - Japan's Nikkei share average hit a seven-year high on Tuesday as speculation swirled that Prime Minister Shinzo Abe may postpone a planned sales tax increase and call a snap election to bolster his political standing.

The Nikkei share average rose 2.1 per cent to 17,124.11 points, its highest close since October 2007, with traders citing heavy buying in the Nikkei futures by speculators such as commodity trading advisors (CTAs).

Local media reported on Tuesday that Abe might call a snap election before the end of the year if he decides to delay a planned hike in the sales tax to 10 per cent slated for next October. No election for parliament's lower house need be held until 2016.

Abe's junior coalition partner said on Tuesday his party should be prepared for a possible early election.

The news surprised financial markets, which have long expected that Abe will go ahead with the second stage of the planned tax increase despite a sharper-than-expected blow to the economy from the first tax hike in April.

A snap election could cement Abe's grip on power because opposition parties are too fragmented to win, despite a decline in Abe's approving ratings.

"You just can't come up with a scenario of a victory by the opposition. So this means Abe will have four more years to go,"said Norihiro Fujito, senior strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Both fiscal and monetary policies will be supporting growth in the near future. And today markets started to price that in,"he added.

Japanese shares have jumped after the Bank of Japan surprised investors by unleashing more stimulus on Oct 31.

The rally on Tuesday was led by buying in Nikkei futures and options, which led to sharp outperformance of the Nikkei compared to the broader market.