Tokyo shares soar to seven-year high on BOJ stimulus, pension fund

TOKYO (Reuters) - 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 a 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 per cent to 16,961.73 by 0113 GMT - its highest level since October 2007. The index surged 4.8 per cent 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 percent from the current 12 per cent. 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 US$1.2 trillion fund."

Financial shares soared, with Daiwa Securities shooting up 12.6 per cent and Nomura Holdings Inc climbing 7.6 per cent.

Overall, the Tokyo Stock Exchange grouping of securities shares jumped 8.8 per cent.

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 per cent and Mitsui Fudosan Co Ltd climbed 5.5 per cent.

Meanwhile, Japan's major exporters received a boost on the yen's slump.

The US 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 per cent, shrugging off news of an impending probe by U.S. regulators into whether the firm failed to report deaths or injuries involving air bags now part of a sweeping federal review. Panasonic surged 7.0 per cent, Toyota Motor Co advanced 4.2 per cent and Canon added 3.2 per cent.