Nikkei rises 1.5% as Fed's taper signals confidence in US economy

Stocks also bolstered by a surge in the dollar/yen to over five-year highs

Japan's Nikkei share average jumped 1.5% on Thursday morning to within striking distance of its year high, as global equity markets took the glass half-full view after the US Federal Reserve announced it would start to unwind its historic stimulus.

Tokyo stocks were also bolstered by a surge in the dollar/yen to over five-year highs in the wake of the Fed decision, underscoring the benefits of a weak currency for Japan's export-reliant economy.

The Fed said it would reduce its monthly asset purchases by $10 billion to $75 billion, while it also indicated that its key interest rate would stay at rock bottom even longer than previously promised.

In contrast to the US central bank, the Bank of Japan is committed to its massive asset-purchase program aimed at sparking inflation and spurring long-term sustainable growth.

On the whole the Fed's move was seen as a vote of confidence on the US economy, as a run of upbeat data recently added to signs that growth momentum is broadening.

"The Fed learned its lesson from May as it startled the market by signalling a cut in its stimulus out of the blue," said a chief investment officer at a US asset management firm, referring to the global market confusion when emerging markets' stocks and currencies tumbled on concerns that liquidity would dry up.

"The Fed made sure the impact would be limited this time by saying it would keep the interest rate low, so it is communicating with the market better than before."

The Nikkei added 233.30 points to 15,821.10 in mid-morning trade, after rising as high as 15,879.75, a hair's breath away from its May high of 15,942.60. The Nikkei has risen for a third day.

But with institutions, including JPMorgan, locking in profits after buying futures on Wednesday, the Nikkei may lack the extra momentum required to top its May high on Thursday, traders said.

The Topix gained 1.1% to 1,263.71, with all of its 33 subsectors in positive territory.

Analysts said investors were also relieved to see the 10-year US Treasury yield stayed below 2.9% after the Fed taper decision, given many had expected the yield to test that level.

"Fed's tapering is a symbolic event, but the market was relieved that the impact from tapering would be limited, so there is nothing more positive than this to the stock market," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

He sees the Nikkei reaching 16,000 and going further ahead of that level by year-end.

Bellwether exporters attracted buying as the greenback rose to 104.37 yen, a level not seen since October 2008.

Panasonic Corp rose 3.6%, Honda Motor Co added 1.7% and Fanuc Corp surged 3.7%. A weaker yen lifts exporters' competitiveness abroad as well as their profits overseas when repatriated.

Brokerage firms were also changed higher, with Nomura Holdings rising 2.1% and Daiwa Securities Group advancing 1.2%.

The Nikkei is up more than 50% this year, driven by Tokyo's aggressive fiscal and monetary stimulus aimed at pulling the world's third-largest economy out of two decades of stagnation. The benchmark is on track for its best yearly rise since 1972.