Japan's Nikkei average rose to a seven-month closing high on Wednesday, lifted by sharp gains in Chinese equities after comments by Communist Party chief raised hopes for an economic recovery in the world's second-largest economy.
Renewed investor appetite for riskier assets, as evidenced by gains in the euro and Asian stocks, helped weaken the yen against the dollar, which rose 0.5% to 82.25 yen, and in turn, helped cut the losses of some Japanese exporters' shares.
Gains in index heavyweight Fast Retailing Co, which reported strong November same-store sales at its Uniqlo casual clothing chain in Japan, also supported the market.
The Nikkei ended 0.4% higher at 9,468.84 points in a choppy session, after trading in range of 9,376.97 to 9,515.86.
"China and the yen are the main drivers," a trader at a foreign bank said.
Remarks by Xi Jinping that the Chinese authorities would continue fine-tuning economic policies in 2013 to ensure stable growth tempered concerns over whether US lawmakers can break an impasse to avert the so-called fiscal cliff before year-end.
Construction machinery makers Komatsu Ltd and Hitachi Construction Machinery Co Ltd, which have significant exposure in China, gained 0.7 and 1.8%, respectively.
Exporters headed higher included Nissan Motor Co, Olympus Corp and Kyocera Corp, gaining between 0.4 and 1.9%.
Sharp Corp climbed 4% after the struggling TV maker said US chipmaker Qualcomm Inc will invest as much as $120 million in the Japanese firm, a cash injection likely to make it Sharp's biggest shareholder.
Short-selling interest in Sharp slipped slightly, with 92.78% of its stock that is available to be borrowed out on loan as of December 3, down from 93.46% on November 30, according to data provider Markit.
Weak yen the key
Led by exporters, the Nikkei has risen 9.3% over the past three weeks while the yen has weakened as investors bet the Bank of Japan would step up its monetary easing policy under a likely new government after a December 16 general election.
Shinzo Abe, leader of the main opposition party, has called for the Bank of Japan to embark on "unlimited easing" and set an inflation target at 2%.
The benchmark Nikkei is up 12% this year, in line with a 11.9% gain in the US S&P 500 and a 13% rise in the pan-European STOXX Europe 600.
Credit Suisse expected the Nikkei to reach 10,400 by the end of 2013, 9.8% above where it closed on Wednesday, although it kept Japanese equities at 'benchmark' in its global portfolio model because it said Japan had the tightest monetary conditions of any region despite cheap valuations.
"The key is the speed with which the Bank of Japan will print money. Expectations might already be too high, given yen shorts are close to six-year highs and the implied inflation rate is 1.3%," the brokerage said in a report.
Credit Suisse said it favoured exporters with positive earnings momentum and cheap valuations versus their peers, which include oil and gas explorer Inpex Corp, tyre maker Bridgestone Corp and financial firm Orix Corp, and reflation plays such as banks and real estate companies.
The broader Topix index was flat at 781.86 on Wednesday, with 1.84 billion shares changing hands, up from Tuesday's 1.74 billion but down from last week's average of 2.01 billion.
Fast Retailing rose 3% and was the second-most traded stock on the main board by turnover after it said same-store sales at its Uniqlo chain in Japan surged 13.7% in November from a year earlier due to strong sales in down jacket and winter underwear.