Japanese stocks have posted their biggest one-day gain since June 2013, underpinned by reports the government's massive pension fund will more than double its allocation for domestic stocks.
The Nikkei index soared 4 per cent to close at 15,111.23, after the Nikkei newspaper reported the $US1.2 trillion Government Pension Investment Fund will increase its allocation target for shares to about 25 per cent from 12 per cent.
The fund will also lift its holdings of foreign bonds and stocks to about a combined 30 per cent from 23 per cent, while reducing domestic notes to the 40 per cent level from 60 per cent, the paper said.
"Twenty-five per cent is more than the market expected," Kenji Shiomura, a senior strategist at Daiwa Securities Group told Bloomberg. "They probably can't buy all the Japanese stocks they need to get to 25 per cent by the time they announce it. However, it wouldn't be a surprise if they've already started moving bit by bit."
Investors are awaiting any word from the GPIF on its new allocations after a government-picked panel advised it to reduce bonds to boost returns.
Takatoshi Ito, a member of the panel, said his personal recommendation is to increase the target for Japanese and foreign stocks to about 25 per cent each and cut notes to around 35 per cent.
The fund can adjust its share allocation to six percentage points higher or lower than the target, meaning that after the change it will be able to hold about 30 per cent at most in domestic equities, the Nikkei reported.
Mr Ito said that the GPIF would be "stupid" to announce its new investment strategy before adjusting asset allocations. Publishing targeted weightings in advance would move markets, forcing the fund to buy at highs and sell at lows, he said in an interview last week.
The fund's asset review could come as late as December, as GPIF officials, members of its investment committee and the health ministry have different views on the best timing and approach, Mr Ito said.
with Bloomberg
