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The Japanese banking sector got a lift from Merrill Lynch Japan's upgrade of the sector to "overweight" from "marketweight." This was a no-brainer for ML given the prolonged selling that's finally abated over the past two days as bulls fight back. The financial press reported that ML's basis for the upgrade was valuation as bank stocks are now trading under fair value.

Mitsubishi UFJ Financial Group (NYSE:MTU) was among one of the five banks ML had a "buy" rating on and at one point surged 5.67% while going on to close up 1.42%, its first close in the black in 9 days.

The pop in Mitsubishi UFJ was likely due to short covering. Yesterday I posted about the jump in short positions and the remaining balance of long margin positions that were keeping downward pressure on Mitsubishi UFJ's ordinary shares (click here for details.)


Mitsubishi UFJ Financial Group (MTU) 1-year chart:

Source: Merrill Lynch Upgrades Japan's Banking Sector, Mitsubishi UFJ Rallies (MTU)