(Bloomberg) -- Japanese shares soared, reversing earlier losses, as the yen weakened after Bank of Japan Deputy Governor Shinichi Uchida said the central bank will not raise rates when the market is unstable.
The Nikkei 225 Stock Average rose as much as 3.4%, while the Topix climbed more than 4%, erasing earlier losses as exporters advanced. Lenders led gains as the Topix's bank index jumped as much as 9.1% in a sudden turnaround.
“Uchida's comments were quite positive in that they show consideration for the market,” said Jumpei Tanaka strategist at Pictet Asset Management Japan Ltd. “Like other major central banks, the BOJ is becoming aware of the importance of dialog with the market.”
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The rebound spurred speculation pension funds picked up shares. Japan's Government Pension Investment Fund, which had ¥254.7 trillion ($1.74 trillion) in assets as of June, puts about 25% of its portfolio in domestic stocks.
“The Topix turning positive may indicate that pension funds are coming in,” said Yusuke Sakai, senior trader at T&D Asset Management. “They need to buy stocks at these levels.”
Overseas long-only investors may be buying now that shares are trading at bargain prices, he added. The Topix traded at 13 times expected earnings as of the previous close, versus at least 15.5 times just less than a month ago.
Still, the market remains unstable amid volatile conditions that sent the equity gauges into bear markets on Monday. The Nikkei 225 and the Topix are down about 15% from highs hit last month, after sliding into a bear market on Aug. 5 when losses exceeded 20%. The Nikkei's implied volatility touched its highest level since 2008 at the start of the week.
--With assistance from Toshiro Hasegawa.
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