Japan's Nikkei share average hit a six-week high on Thursday, gaining a steady foothold above 9,000 after strong U.S. data pushed the yen lower against the U.S. dollar, triggering a wave of short-covering on exporters.
Toyota Motor Co led the pack with a 3.2 percent gain as the main board's most-traded stock, with other exporters such as industrial robot maker Fanuc Ltd and camera and printer group Canon Inc enjoying a bounce as a softer yen promised higher profits from overseas revenues.
The Nikkei advanced 1.9 percent to 9,092.76 , clearing its 200-day moving average with ease and jumping above the psychologically key 9,000 level to hit its highest closing level since July 4, when it hit a two-month high.
"This could mark a turning point for the Nikkei if the focus switches back to exporters and large caps for a while, and away from the defensive names that investors have focused on in recent months," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
Canon rose 2.8 percent and Fanuc put on 4.3 percent as the yen eased to more than 79 yen against the greenback after U.S. industrial output expanded 0.6 percent last month, the fastest pace since April, and homebuilder sentiment improved to a 5-year high in July.
"Although the exchange rate has had an influence today the bigger impact has come from the sale of bonds and the re-allocation of funds into equities," said Yutaka Miura, senior technical analyst at Mizuho Securities.
Life insurers saw sharp gains after yields of "safe haven" Japanese 10-year bonds surged to a two-month high, promising them higher future incomes. Dai-ichi Life Insurance Co Ltd jumped 6.6 percent while T&D Holdings Inc added 6.1 percent.
The oil and coal Topix subindex rose 2.3 percent, propped up by Idemitsu Kosan Co Ltd's 6.5 percent leap after Mitsubishi UFJ Morgan Stanley upgraded the oil refiner to "outperform" and hiked its target price on a better-than-expected first quarter.
Sharp rallies
Even troubled Sharp Corp managed to gain 3.6 percent, although that was after repeatedly dipping into negative territory as investors remained unconvinced that the company's sale of a key solar cell factory and some of its Tokyo offices, as reported in the Yomiuri daily, could change its fate.
One senior trader said the move was partly due to some long-only investors, who had lent their Sharp shares to short-sellers, recalling the loaned stock so they could offload the shares from their own portfolios.
"There are very deep, tenacious fears that Sharp will go bankrupt, and the company is going to find it hard to stamp those out no matter what they do," said Hideyuki Ishiguro, senior strategist at Okasan Securities.
Analysts attributed most of the market's gains on the day to short-covering rather than new money entering the market, as volume remained low in the middle of Japan's "Obon" summer holiday season. Less than 1 trillion yen worth of shares changed hands on the first section of the Tokyo Stock Exchange.
"I think this rally will be difficult to sustain as doubts remain about exporters cutting their forecasts or disappointing with earnings because of overseas factors," said Miura of Mizuho Securities.
Dwindling demand due to the euro zone crisis and a slowdown in the U.S., China and emerging nations has pressured exporters in recent months, particularly during the recent earnings season that saw 53 percent of 154 Nikkei companies undershoot guidance.
The broader Topix climbed 1.6 percent to 759.12, its highest level since July 10.
Low volumes this month could be an unexpected boon for the Japanese market, according to Jun Yunoki, equity strategy analyst at Nomura Securities.
"I think the next target for the Nikkei is around 9,400 or 9,500 as thin trade means it could easily sail through 9,200 or 9,300," he said.
Increased expectations of policy action from euro zone leaders are underpinning the benchmark index's recent strength, according to market players, despite foreign investors being net sellers of Japanese stocks for the seventh week in a row last week.
The Nikkei is now just 0.5 percent off the two-month intraday high of 9,136.02 it hit on July 4, after putting in its best weekly performance since February last week.
