By Kiyoshi Takenaka
TOKYO (Reuters) - Thousands packed a 1,300-year-old Shinto shrine in downtown Tokyo on Wednesday, the first official working day of 2017 in Japan, to pray for good luck and economic success in the new year.
Investors did their part to kick off the year on a positive note, sending the Nikkei 225 index soaring 2.5 percent to its highest in 13 months.
Prime Minister Shinzo Abe was greeted by squealing crowds as he visited the Ise Grand Shrine, the holiest site in Japan's Shinto religion, near where Group of Seven leaders met last year for a summit.
"We will put the highest priority on the economy," said Abe, dressed in a formal morning coat, at his New Year's press conference.
Although the yen's recent weakness against the dollar has lifted sentiment among the nation's vital exporters, the country faces persistent challenges in a sluggish, deflationary economy and an aging, shrinking population.
Abe smiled and high-fived some onlookers during his shrine visit, but his speech highlighted the serious problems facing Japan.
"The trend of the diminishing number of children coupled with growing population of the elderly is rapidly progressing," he said. "Deflation ... has been weighing on the Japanese economy for nearly 20 years and shaken our confidence on sustainable growth."
Abe also highlighted a "tougher" security environment surrounding Japan, a nod to China's aggressive maritime expansion and North Korea's nuclear and missile programmes.
Japan needed to tackle its economic problems head-on, Abe said, pledging to stick with his three-pronged "Abenomics" strategy of monetary easing, fiscal stimulus and structural reforms, which he referred to as his three "arrows."
In the Chinese zodiac, 2017 is the Year of the Rooster, which some investors believe will bring robust economic activity.
"If the saying that markets in the year of the monkey (2016) and rooster are raucous holds true, then this year will be clamorous indeed," Akira Kiyota, chief executive of Japan Exchange Group, said at the Tokyo Stock Exchange's opening ceremony.
"Though I hope all this year's commotion will be positive," he added.
In downtown Tokyo, the Kanda Shrine was packed - typical of many shrines and Buddhist temples over New Years. The shrine is popular among company employees and business owners because as it is dedicated to two of seven lucky gods.
"I'd like to do my best as company president and I prayed for my employees' health," said businessman Yoshimichi Morishita.
(Reporting by James Daniel, Teppei Kasai, Kiyoshi Takenaka; Editing by Malcolm Foster and Nick Macfie)