By Dominic Lau
TOKYO (Reuters) - The Nikkei share average climbed to a near 5-year closing high on Monday, as investors gave the thumbs-up to the Bank of Japan's rapid move to immediately begin buying longer-dated bonds to whip deflation.
But Japanese government bond prices were mixed, with the longer maturities underperforming, after the central bank conducted its first government bond buying operations.
The BOJ offered to buy 1 trillion yen of JGBs with maturities of between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years.
The central bank promises to inject $1.4 trillion into the world's third-largest economy in less than two years by buying government bonds across the yield curve as well as riskier exchange-traded funds (ETFs). The sweeping monetary expansion, which is aimed at ending nearly two decades of deflation and economic malaise, has triggered a wave of buying in Japanese equities.
"The BOJ's bazooka has sparked the buying of Japanese stocks, especially domestic sectors, like real estate," said Yasuo Sakuma, a portfolio manager at Bayview Asset Management. "I am overweight domestic demand sectors rather than exporters."
"Weaker yen is good for Japanese stocks, especially exporters. But the global economy...is relatively weak. Europe is still in a slump, and the recovery pace of developing countries like China and India is slower than expected."
The Nikkei ended 2.8 percent higher at 13,192.59, its highest closing level since August 2008. Trading was relatively active, with 3.14 billion shares changing hands, down from Friday's 4.77 billion but up from Thursday's 3.09 billion when the BOJ unveiled the sweeping stimulus.
The positive impact of the dramatic campaign by the BOJ saw investors shrug off a weaker-than-expected U.S. jobs report that raised concerns the recovery in the world's largest economy may be losing steam.
Real estate companies jumped 5.6 percent, outpacing the broader market once again after rallying nearly 12 percent on Friday.
The sector has surged 112 percent since mid-November, when Prime Minister Shinzo Abe unveiled in his election campaign bold expansionary fiscal and monetary policies to revive Japan's stagnant economy. That compares with a 52 percent rally in the benchmark Nikkei during the same period.
Lenders Mitsubishi UFJ Financial Group , Mizuho Financial Group (8411.T) and Sumitomo Mitsui Financial Group rose between 3.4 and 5.9 percent, while Nomura Holdings , Japan's top brokerage, surged 10.1 percent.
Apart from real estate companies, Sakuma said he also preferred consumer financing firms and securities companies as well as venture capital firm Jafco Co Ltd (8595.T), which surged 11.5 percent.
Major exporters such as Canon Inc (7751.T), Toyota Motor Corp and Honda Motor Co were also in demand, up between 3.5 and 4.1 percent as the yen fell as much as 1.3 percent to 98.85 to the dollar, the lowest since June 2009.
BENCHMARK JGB YIELDS DOWN
Yields on Japanese government bonds were mixed as the BOJ started its stimulus operations. The five-year yield slipped 3 basis points to 0.150 percent.
The 10-year yield eased 0.5 basis point to 0.525 percent, after it swung violently from a record low of 0.315 percent to a three-week high of 0.600 percent in Friday's trading. The JGB 30-day implied volatility jumped to 5.32 in the previous session to a two-year high.
Ten-year JGB futures rose 0.32 point to 144.34 after earlier hitting a high of 145.25.
"We think the 10-year yield will approach 0.20 percent in the coming months," said Maki Shimizu, senior strategist at Citigroup in Tokyo.
But credit ratings agency Moody's Investors Service said the central bank's effort merely buys time for the government to implement a credible structural reform and fiscal consolidation plan.
Longer maturities underperformed, with the 20-year yield and the 30-year yield both up 9.5 basis points to 1.225 and 1.305 percent, respectively.
The 20-year yield is still down 15 basis points so far this month, while the 30-year yield has fallen 20.5 basis points.
One of the BOJ's aims is to drive long-term interest rates lower in the hope that Japanese companies will increase their investments and households will spend some of their vast savings.
(Editing by Shri Navaratnam)