By Ayai Tomisawa
TOKYO (Reuters) - Japan's Nikkei average jumped 2.2 percent to a two-week high in heavy trade on Thursday after the Bank Of Japan announced a sweeping monetary expansion campaign that will include heavy investment in REITs and ETFs, boosting reflationary stocks such as real estate firms and banks.
The Nikkei rose 272.34 points to 12,634.54, within striking distance of a 4 1/2 year high of 12,650.26 hit on March 21. The BOJ decision saw the benchmark quickly reverse early losses of more than 2 percent which were prompted by concerns over the U.S. economic recovery.
Market players said that the central bank has responded to market expectations, which triggered buying from foreign investors who have been betting on further gains in the Japanese market this year.
In an effort to end decades of grinding deflation and inject life into the world's third-largest economy, the BOJ announced a radical shift in policymaking, adopting a new balance sheet target and pledging to double its government bond holdings in two years.
At Governor Haruhiko Kuroda's debut policy-setting meeting, the central bank shifted its policy target to the monetary base from the overnight call rate, which is at zero to 0.1 percent.
It also said that it will increase purchases of Japan real-estate investment trusts (REITs) by 30 billion yen per year and increase purchase of exchange traded funds (ETFs) by 1 trillion yen per year.
The Topix jumped 2.7 percent to 1,037.76 in heavy trade, with 4.27 billion shares changing hands, the highest level in nearly three weeks. It compares with last month's daily average volume of 3.24 billion shares.
"The market welcomed the BOJ's stance by responding to market's expectations," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
He said the central bank's decision to bring forward the timing of open-ended asset purchase was widely expected, but the BOJ's plans to increase the amount of purchases of REITs and ETFs was a positive.
"It gave an impression that it is a central bank which can communicate with the market well."
The REIT index <.TREIT>, which was trading in negative territory earlier, immediately responded to the announcement and ended 4.3 percent higher. Japan Hotel Reit Investment Corp <8985.T> rose 4.3 percent, Mori Hills Reit Investment Corp <3234.T> jumped 6.0 percent and Nippon Building Fund Inc <8951.T> added 6.0 percent.
Real estate and banking stocks, which are also beneficiaries of the government's reflationary policy, fared well, with Mitsubishi UFJ Financial Group <8306.T> gaining 5.5 percent and Sumitomo Mitsui Financial Group <8316.T> adding 6.6 percent.
The real estate subindex <.IRLTY.T> gained 7.4 percent and was the best sectoral performer. Mitsui Fudosan Co <8801.T> jumped 7.8 percent, while Mitsubishi Estate Co surged 7.2 percent and Sumitomo Realty & Development Co <8830.T> soared 10 percent.
"Foreign investors like these three big real estate firms, and these stocks will likely continue climbing," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
However, Fujito said that the Nikkei's further gains would depend on how exporters fare, as their stock prices generally determine the index's performance.
"The weak yen trend is seen to have paused for a while. The Nikkei will likely rise to 13,000 if the dollar rise towards 97 yen, but if not it will probably hover around 12,000," Fujito said.
A weak yen lifts exporters' overseas earnings when repatriated and boosts their competitiveness in the global market.
On Thursday, the dollar rose to 94.62 yen after the BOJ's easing, pulling away from a one-month low of 92.57 hit on Tuesday, though it is still off a 3-1/2 year peak of 96.71 set a few weeks ago.
Exporters also advanced with Toyota Motor Corp <7203.T> up 2.8 percent, Honda Motor Co <7267.T> adding 3.4 percent and Sony Corp <6758.T> 0.2 percent higher.
(Editing by Kim Coghill & Shri Navaratnam)
