Japanese stocks jumped to a seven-year peak on Tuesday, as investors lapped up a set of positive catalysts including an unexpected central bank move to ease policy further and a reallocation of funds to domestic stocks by the public pension fund.
After months of uncertainty about the economic outlook amid weakening growth following a sales tax hike in April, the Bank of Japan on Friday shocked markets by committing to ramp up its already massive stimulus.
The move sent the Nikkei benchmark and global stocks soaring, and hammered the yen in the process. Returning from a long weekend, investors picked up from where they left off, lifting the Nikkei benchmark 3.5% to 16,961.73 by 0113 GMT - its highest level since October 2007. The index surged 4.8% on Friday in the aftermath of the BOJ's jolt. Also on Friday, Tokyo confirmed that the Government Pension Investment Fund would raise domestic stock holdings to 25% from the current 12%.
The BOJ and GPIF announcements were seen by market players as fresh gambits in the government's plan to defeat deflation in Japan. "It's a sea-change in investment decision making," said Gavin Parry, managing director of Parry International Trading in Hong Kong. "This is changing the risk-weighting psyche. You can't ignore a $1.2 trillion fund."
Financial shares soared, with Daiwa Securities shooting up 12.6% and Nomura Holdings Inc climbing 7.6%. Overall, the Tokyo Stock Exchange grouping of securities shares jumped 8.8%. The BOJ announced it would triple purchases of real estate investment trusts, prompting investors to buy shares in related firms.
Tokyu Fudosan jumped 7.1% and Mitsui Fudosan Co Ltd climbed 5.5%.
Meanwhile, Japan's major exporters received a boost on the yen's slump. The dollar bought 113.61 yen at 0020 GMT, close to a seven-year peak of 114.21 reached overnight and not far from the December 2007 peak of 114.66. Honda jumped 4.7%, shrugging off news of an impending probe by US regulators into whether the firm failed to report deaths or injuries involving air bags now part of a sweeping federal review.
Panasonic surged 7%, Toyota Motor Co advanced 4.2% and Canon added 3.2%. The broader Topix jumped 3.2% to 1,375.88, while the JPX-Nikkei Index 400 also gained 3.3% to 12,572.04.