Global investors are putting more money to work, reducing their cash reserves and buying up stocks, with optimism on Japan reaching its highest level since 2005, a monthly survey carried out last week showed.

Global investors are putting more money to work, reducing their cash reserves and buying up stocks, with optimism on Japan reaching its highest level since 2005, a monthly survey carried out last week showed.

The Bank of America-Merrill Lynch fund manager poll for November showed the proportion overweight in equities has risen 12 percentage points to 46 percent, with Japanese stocks a core beneficiary of people betting on growth.

The survey was carried out from Nov. 7 to Nov. 13, before Japan reported a surprise fall in third-quarter output that put the world's third-largest economy in recession.

Japanese assets saw their second consecutive month of increases in allocation with 45 percent of fund managers overweight Japan, up from 32 percent in October and 23 percent in September.

"Taking on risk, especially in equities, in Japan and in the dollar is at the forefront of their thinking,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research.

Japan's government led by Prime Minister Shinzo Abe has sought to revive growth with a mix of easy monetary policy, spending and structural reform.

But its economy unexpectedly shrank from July to September after a sharp contraction in the second quarter that was widely blamed on a sales tax hike that hit consumer spending hard.

Abe on Tuesday postponed a further hike in the sales tax and called an early election, expected to be held in December, to seek a fresh mandate for his economic policies.

The BofA Merrill Lynch survey found fewer investors are now overweight in cash, used as a shelter in times of volatility, with the proportion falling to 13 percent from 27 percent in October.

The survey of 214 panelists managing $569 billion also found 43 percent of hedge funds taking part in the poll are betting on stocks rising, up from 35 percent in October.

However, investors also highlighted a number of risks that could derail economic recovery in the coming year.

Deflation was identified by nearly a third of managers as the biggest "tail risk" while about a fifth identified geopolitical crisis as their biggest worry.