By Leika Kihara

TOKYO (Reuters) -Japan’s stock market is showing early signs of overheating, the central bank said on Thursday, warning of the risk that uncertainty over U.S. trade policy could cause sharp corrections and hit financial institutions.

The Nikkei stock index closed at a record high on Tuesday after Sanae Takaichi, a supporter of fiscal stimulus, clinched a parliamentary vote to become the nation’s first female prime minister. The index has surged nearly 24% so far this year.

The growing presence of foreign hedge funds, which have increased leverage in trading Japanese government bonds (JGB), could also amplify market volatility, the Bank of Japan said in a semi-annual report on the country’s financial system.

“In the event of unexpected changes in market environment, hedg

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