Japan's premier-in-waiting Shinzo Abe came out fighting Monday after his sweeping election victory, saying there can 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 crushed opponents in national polls and he immediately restated Tokyo's claims.

"The Senkaku islands are Japan's inherent territory," Abe told a press conference, 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 declared itself ready to work with Japan on "further development of stable relations" but expressed disquiet at where Abe would lead Japan.

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

"The current task is now to properly handle the current issue" of the territorial dispute, she added.

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

At home, his large electoral margin boosted hopes for the country's problem-plagued economy, with investors pushing stocks up as the painfully high yen eased.

The one-time premier has vowed to put the moribund economy back on track after years of deflation, made worse by a soaring currency that has squeezed exporters.

Topping his agenda was 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.

Investors are increasingly betting on some action, with the yen tumbling against the dollar and euro on Monday, while Tokyo's Nikkei 225 stock index surged 0.94 percent 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 rout was completed by news that the LDP and its junior coalition party New Komeito secured a large enough majority in the lower house to overrule the upper chamber.

"Control of two-thirds of lower house seats would alleviate concerns about divided control of the Diet's two chambers," brokerage giant Nomura said in a note.

"It is also likely to fuel expectations, particularly among foreign investors, of more expeditious policymaking."

Fukushima plant operator TEPCO was a big winner on Monday, with its shares rocketing 33 percent, leading the charge by energy firms as investors cheered the likely end to a nascent move to snuff out atomic power.

Anti-nuclear sentiment has run high in Japan since last year's disaster at the plant, with opinion polls showing a majority of voters want to phase out atomic power.

But the mood did not translate into success for parties pushing for an atomic exit.

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 set to meet with business leaders on Tuesday morning.

His offer to boost spending on infrastructure was standard fare from the LDP playbook but chimed with voters in the northeast, where the devastation of the March 2011 tsunami is still evident.

And his win stoked speculation that whoever is appointed to replace BoJ governor Masaaki Shirakawa next year will favor a more aggressive easing stance.

"Foreign investors are likely to remain bullish, betting that Mr. Abe will fulfill his promises to turn on the fiscal taps," Kenichi Kubo, senior fund manager at Tokio Marine Asset Management, told Dow Jones Newswires.

He is likely to "pressure the Bank of Japan into much more aggressive asset purchases to pull Japan out of recession and prolonged deflation".

However, Credit Agricole said in a note that "it is not obvious that coalition parties will be as welcoming" to Abe's aggressive policies. (AFP)