REFILE-Nikkei hits 4-1/2 year high on Fed optimism, BOJ easing expectations

Wed Mar 20, 2013 10:13pm EDT

* Foreigners buy Japan stocks for 11th day
    * BoFA Merrill Lynch recommends banking, autos
    * Short-term investors buy Japan stocks - analyst

    By Ayai Tomisawa
    TOKYO, March 21 (Reuters) - Japan's Nikkei share average
rose 1.4 percent to a 4-1/2 year high on Thursday, bolstered by
the U.S. Federal Reserve's pledge to maintain stimulus and
expectations of further monetary easing by the Bank of Japan's
new leadership.
    The Nikkei rose 182.03 points to 12,650.26, its highest
level since early September 2008, helped by gains in exporters.
    On Wednesday, Haruhiko Kuroda, an advocate of aggressive
easing, took the central bank's helm along with deputies Kikuo
Iwata and Hiroshi Nakaso.
    "The market expects easing at its first meeting (on April
3-4) under the new leadership, so until then, the market should
stay strong," said Toshihiko Matsuno, a senior strategist at
SMBC Friend Securities.
    The Nikkei has gained 21 percent this year on widely
expected aggressive policy easing after Prime Minister Shinzo
Abe's campaign to pull the country out of persistent deflation
and bolster growth.
    The yen has weakened 11 percent during the same period,
boosting hopes that exporters' overseas earnings will be lifted
when repatriated.
    The Topix gained 1.2 percent to 1,058.39.
    On Thursday, Sony Corp gained 3.9 percent and was
the most-traded stock on the board by turnover, while Canon Inc
 added 2.2 percent and Panasonic Corp rose 1.9
percent.
    Analysts noted investors were relieved after the Fed said it
will retain its $85 billion monthly bond-buying programme to
support the economy, pushing the dollar to 96.13 yen,
within striking distance of a 3-1/2 year high of 96.71 reached
last week. 
    The yen last traded at 95.86 yen against the dollar.
    While many analysts are bullish about the Nikkei's outlook,
they said the Japanese market is still vulnerable to a rise in
the yen.     
    "Excessive worries about a bailout on Cyprus have receded,
but we still need to stay alert on currency moves as we were
caught off-guard by the yen's rise the other day (when the
controversial Cyprus bailout plan rattled markets)," SMBC
Friend's Matsuno said. 
    "We were reminded that the yen could be bought when
investors want to avoid risk."
    Cypriot leaders held crisis talks on Wednesday to avoid a 
financial meltdown a day after the country's parliament rejected
a levy on bank deposits, which had been proposed over the
weekend by European Union officials. 
    
    FOREIGN BUYING CONTINUES
    
    Amid strength in the Japanese market, Japan equity weighting
by global institutional investors was 15 percent overweight for
March, up for the third month while investors have confidence in
Japan's corporate earnings outlook, according to a survey
conducted by Bank Of America Merrill Lynch.
    "In sector allocations, Japan investors' overweight position
on banks increased again to stand at a very high level, though
they are even more heavily-weighted toward autos, which
continues to be the most popular sector," equity strategist
Naoki Kamiyama wrote in the report.
    The banking sector has outperformed the overall
market by rising 30 percent this year, while the transport
equipment sector has gained 25 percent.
    On Thursday, foreigners placed net buy orders for Japanese
stocks for the 11th straight day before the market opened.
    But some analysts say that those who pour in money in to the
market before the cautiously awaited BOJ's policy meeting on
April 3-4 are mostly short-term investors. 
    "Short-term buyers like hedge funds are chasing both futures
and cash markets higher on hopes for monetary easing while they
plan to sell after the news is out," said Shun Maruyama, chief
equity strategist at BNP Paribas. "Long-term investors would not
buy at this timing."