Japanese stocks rose on Wednesday as investors held out hope for more robust growth after Prime Minister Shinzo Abe delayed a tax hike and called an early election to seek a fresh mandate for his aggressive policies to shore up the economy.
MSCI's broadest index of Asia-Pacific shares outside Japan was a touch lower while Japan's Nikkei rose 0.6 percent after Abe's announcement late on Tuesday.
"Considering the current economic conditions, postponing the consumption tax would be positive for stocks," Ryota Sakagami, chief strategist at SMBC Nikko Securities, said in report.
Abe's tax-hike delay by 18 months is expected to help the world's third-biggest economy, which unexpectedly slipped back into a recession in the June-September quarter after an earlier sales tax increase clobbered consumption.
"But the ruling party bloc is likely to reduce their seats. Their victory is unlikely to create hopes for big changes. So we do not anticipate the type of boom in Japanese stocks we saw after election in 2005 and 2012," Sakagami added.
Few expect Abe's Liberal Democratic Party and its smaller ally to lose their majority, but financial markets and analysts are now contemplating the possibility that the ruling bloc might fare less well than initially anticipated.
Investors are now looking to the Bank of Japan's policy decision later in the day, and specifically on what BOJ Governor Haruhiko Kuroda would say about the country's slide into recession and Abe's decision to delay the tax hike - something Kuroda has said is not advisable.
The BOJ stunned markets last month by expanding its monetary easing program to preempt a slowdown in inflation.
The Japanese yen, which often moves inversely to Japanese stock prices, held near seven-year lows.
The dollar traded at 116.87 yen, just below its seven-year high of 117.065 hit on Tuesday. The euro fetched 146.51 yen, having hit a six-year high of 146.69 yen
The euro held firm against the dollar at $1.2530, after German analyst and investor sentiment rose unexpectedly in November for the first time in almost a year.
The ZEW index surpassed even the most bullish forecast, raising hopes of an improvement in Europe's biggest economy after it dodged recession in the third quarter.
The upbeat data also helped European shares to close at a seven-week high while Wall Street shares inched up as the healthcare sector benefited from the takeover of Allergan Inc by Actavis.
Later in the day, the U.S. Federal Reserve will release the minutes of its last policy meeting, which markets will watch for any clues on when the Fed will start raising rates.
U.S. debt yields dipped on Tuesday as benign wholesale inflation figures cemented the view that the Fed can afford to wait for an extended period before raising rates.
The 10-year U.S. 10-year yield stood at 2.319 percent in early Asia, after having dipped about 2.5 basis points on Tuesday.
One major reason inflation is subdued in the United States - and elsewhere - is because of falling oil prices over the last five months, partly on oversupply concerns as U.S. shale oil production has increased.
Oil prices were depressed near four-year lows after two straight days of falls so far this week as traders looked to whether the OPEC will agree on an output cut at its Nov. 27 meeting.
U.S. crude futures stood at $74.34 per barrel, near last week's low of $73.25, having fallen more than 31 percent in the last five months.
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