Nikkei rises to 7 year high

Investors respond positively to news that Japan is expanding QE programme.

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By :  ,  Financial Analyst

Japan's stock market rose to a new seven-year high, in response to the recent announcement of new measures to stimulate the country's economy.

The Bank of Japan announced on Friday that it was committed to boosting confidence in the economy and investors responded in kind.

Japan's Nikkei index surged over the 17,000 point mark for the first time since 2007, indicating that it may finally be getting over the catastrophic global recession, which was precipitated by the credit crunch.

Other factors contributing to this record high included positive investor response to news that Government Pension Investment Fund is to change its strategy.

It revealed that it is to start buying more shares, which Gavin Parry, managing director of Parry International Trading in Hong Kong, described as a "sea-change" with regards to how decision are made with investments.

"The impact of the Bank of Japan's additional easing was big, so it couldn’t be priced in during just one day," Toshihiko Matsuno, chief strategist at SMBC Friend Securities Co in Tokyo, told Bloomberg.

"There is a risk in not holding Japanese shares, and those that sold them off will have to buy them back."

The economist said that the Bank of Japan "stunned financial markets" with its announcement on Friday that it was widening its programme of quantitative easing.

"The bank’s action is also an admission of partial failure thus far; its bond-buying has succeeded in sparking some inflation, yet its goal of achieving price rises of two per cent a year by around April 2015 remains a distant possibility," the online publication stated.

"Along with the government, it badly underestimated the dampening effect of a hike in the consumption tax in April this year, which caused the economy to shrink by 1.7 per cent in the second quarter."

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