Nikkei jumps to 7-year high after BOJ's policy shock, GPIF hopes

Fri Oct 31, 2014 3:29am EDT

* Nikkei posts 7.3 pct weekly gain, 1.5 pct monthly gain
    * Weak yen drives exporter shares higher
    * Abe may use strong market performance as ammunition to
stick to initial tax hike plan - traders
    * Kuroda taking proactive approach - analysts
    * Hopes GPIF will announce increase in Japan, foreign stocks
help mood

    By Ayai Tomisawa
    TOKYO, Oct 31 (Reuters) - Japanese stocks soared to levels
before the global financial crisis on Friday, after the Bank of
Japan stunned markets by easing policy further in a move
prompted by slow inflation after an April tax hike dented
economic growth.
    The central bank decided to increase the pace at which it
expands base money to about 80 trillion yen per year, up from a
previous target of 60-70 trillion yen. 
    The BOJ also decided to increase its purchases of government
debt by about 30 trillion yen and extend the average duration of
JGB holdings to around 10 years, and decided to triple its
purchases of exchange-traded funds and Japan real estate
investment trusts.
    The Nikkei benchmark ended 4.8 percent higher at
16,413.76, the highest closing price since November 2007. It was
also the biggest daily percentage gain since June 2013.
    The BOJ's shock decision also helped the index build a 7.3
percent rise for the week, the best weekly percentage gain in
more than a year.
    For the month, it added 1.5 percent.
    "Most people thought that easing would start in January, and
only a handful people thought that they would do some easing in
October," said a senior trader at a foreign brokerage. "It's
definitely a surprise."
     The Japanese economy has been plagued by weak consumption
after the government raised the consumption tax in April,
prompting government ministers to call on Prime Minister Shinzo
Abe to delay a planned second consumption tax increase next
year.
    But the senior trader said that Abe may use the strong stock
market performance as ammunition to stick to the initial plan.
    Analysts also noted the BOJ is moving quickly to spark a
turnaround in the economy, which suffered its biggest slump
since the global financial crisis in the second quarter. 
    "The central bank acted swiftly before we see more poor data
towards the end of the year," said Hisao Matsuura, a senior
strategist at Nomura Securities.
    "Kuroda has not admitted that, but one of the reasons behind
the market's sharp rise today was that he took a proactive
approach before we see more bad economic (inflation) figures hit
by lower oil prices," Matsuura said.
    At a post-meeting news conference, BOJ Governor Haruhiko
Kuroda told reporters that it is important for the central bank
to strongly commit to achieving its 2 percent price target.
 
     The dollar surged more than 1 percent to a high of 110.67
yen JPY=, its best level since January 2008, lifting exporters.
Toyota Motor Corp jumped 3.8 percent, Honda Motor Co
 surged 4.7 percent and Tokyo Electron Ltd 
soared 3.8 percent.
    Financial shares also surged, with Mitsubishi UFJ Financial
Group rising 4.0 percent, Sumitomo Mitsui Financial
Group soaring 7.2 percent, and Nomura Holdings 
surging 6.8 percent.
    
    PENSION FUND BOOST
    
    The market also got a boost from news that the government
will approve on Friday targets for the $1.2 trillion Government
Pension Investment Fund (GPIF) which aim to increase the ratio
of Japanese shares in its holdings to 25 percent form the
current 12 percent, sources told Reuters. 
    The target for foreign stocks is also expected to rise from
its current 12 percent target, the sources said.
    "Raising to 25 percent from 12 percent (of Japanese stocks)
suggest an impact of 7-8 trillion yen in the Japanese market, a
rise from 3-4 trillion yen," said Nobuhiko Kuramochi, a
strategist at Mizuho Securities. 
    The broader Topix gained 4.3 percent to 1,333.64,
while the JPX-Nikkei Index 400 surged 4.5 percent to
12,172.62.    

 (Editing by Shri Navaratnam)
 
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