December 19, 2012 / 6:58 AM / 5 years ago

Japan's Nikkei surges 2.4 pct to 8-1/2-month high

* Nikkei climbs 2.4 pct on expectations of further policy
    * Topix jumps 2.8 pct, trading volume hits highest since
March 2011
    * Exporters, financials are in demand

    By Dominic Lau
    TOKYO, Dec 19 (Reuters) - Japan's Nikkei share average
jumped 2.4 percent to end above 10,000 for the first time in
more than eight months on Wednesday, on growing expectations of
easier monetary policy under a new government.
    Signs of progress in negotiations in the United States to
avoid spending cuts and tax increases in the so-called "fiscal
cliff" also lifted sentiment.
    Led by exporters and financials, the Nikkei ended
237.39 points higher at 10,160.40 in heavy volume, ahead of the
conclusion of the Bank of Japan's two-day meeting on Thursday.
    Sources said that the central bank will take further easing
steps to support growth, with data on Wednesday showing that
exports fell for a sixth straight month in November from a year
    The benchmark Nikkei has rallied 17.3 percent over the past
five weeks, spurred by the yen weakness after Shinzo Abe, who
was elected as the next prime minister on Sunday, called for the
Bank of Japan to adopt aggressive policy action, including
embarking on "unlimited easing" and setting an inflation target
of 2 percent, to kick-start the ailing economy.
    But many foreign investors, who have missed the early part
of the rally as they are underweight on Japan, were being forced
to dip into the market, likely further supporting the rally.
    "Investors are pouring in new money and expanding their 'hot
picks' from exporters to other sectors," said Naoki Fujiwara, a
fund manager at Shinkin Asset Management.
    The latest fund manager survey by the Bank of America
Merrill Lynch showed global asset managers were not as downbeat
on Japanese equities as in the previous month, with a net 17
percent planning to be underweight on Japan in the next 12-month
versus 39 percent in November.
    According to Reuters data, the most traded January Nikkei
index options were a call with a strike price of 10,500
, 3.3 percent above where the index ended on
Wednesday. The next most-traded was another call at 10,750
, followed by another call at 9,500.
    But Wednesday's hefty gains took the index deeper into
"overbought" territory, with its 14-day relative strength index
at 85, way above 70 which is considered overbought and often
signals a possible near term pull back.
    Technical charts also showed the Nikkei has risen further
above the upper band of the momentum indicator Bollinger Bands,
signalling the index is thought to be overbought and triggered a
 'sell' signal.
    The index is up 20.2 percent this year, outpacing a 15
percent gain in the U.S. S&P 500 and a 14.7 percent rise
in the pan-European STOXX Europe 600.
    The broader Topix index climbed 2.8 percent to
839.34 in active trade on Wednesday, with 4.03 billion shares
changing hands, its highest since March 2011. 
    Exporters led the charge higher included Canon Inc,
Ricoh Ltd, Toyota Motor Corp and Honda Motor
Co, up between 3.5 and 9.1 percent. 
    "You are seeing a lot of short-covering today ... in the
likes of Ricoh, Canon," a senior dealer at a foreign bank said.
    "You are seeing a broad based buying of Japan. People are
starting to squeeze in quite aggressively. The yen continues to
be weak, Abe continues to make the right noise."
    Short-selling interest in Canon has risen sharply, with
27.68 percent of its stock that is available to be borrowed out
on loan as of Dec. 17, up from 9.7 percent on Nov. 30, according
to data provider Markit. The figure was 80.11 percent for Ricoh
as of Monday.
    Financials were also in demand as investors expected the
sector would benefit from any reflation push by the Abe
    Mitsubishi UFJ Financial Group surged 6.1 percent
and was the most traded stock on the main board by turnover,
Sumitomo Mitsui Financial Group advanced 4.2 percent
and Mizuho Financial Group gained 4.3 percent, while
Nomura Holdings Inc, Japan's top brokerage, rose 4.7
    Mizuho and Sumitomo Mitsui Financial Group were the
fourth-and fifth-most traded, respectively
    Insurers jumped 6.2 percent as the rally in
stocks would boost the value of their equity holdings.
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