The Nikkei share average raced to a three-week high on Thursday morning, supported by dovish comments from Federal Reserve Vice Chair Janet Yellen and data showing the Japanese economy notched up its fourth straight quarter of growth.
Yellen, who is expected to take over Fed Chairman Ben Bernanke, said the Fed has "more work to do" to help the economy, suggesting she will be in no hurry to taper the central bank's massive bond-buying stimulus.
The benchmark Nikkei rose 1.3 per cent to 14,748.99 in mid-morning trade, its highest level since October 23, after easing 0.2 per cent on Wednesday.
The broader Topix advanced 0.7 per cent to 1,212.08 in moderate trade, with volume at 39.3 per cent of its full daily average for the past 90 trading days.
"We're in the best possible situation we could be. Risk-on mode is back," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management. "Although the business sentiment was improving in the United States, it seems like tapering is not on the Fed's immediate to-do list."
Stocks were also helped by data showing Japan's economic growth in the third quarter beat market expectations. Growth of 0.5 per cent in the July-September quarter topped market expectations of 0.4 per cent, marking the fourth successive quarter of expansion - the best run for the world's third-largest economy in three years.
"I think there is relief in response to the GDP headline number which was stronger than people were bracing for," said Stefan Worrall, director of equity cash sales at Credit Suisse in Tokyo.
"As U.S. stocks continue to rally to new highs, and the yen has weakened again to the levels near 100 yen, there's a significant positive risk of a resumption of the Japan rally."
The U.S. Dow and the S&P 500 ended at record highs on Wednesday as strong results from Macy's buoyed the market.
Heavyweight stocks in the Nikkei index led the charge.
"Buying is led by hedge funds buying Nikkei futures, rather than real money investors. That in turn prompted arbitrage players to buy Nikkei and sell broader Topix, thus boosting Nikkei heavyweights," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
Fast Retailing Co Ltd and Fanuc Corp climbed 3.5 per cent and 2.4 per cent, respectively.
Fujito believes Japanese institutional investors are likely to take profits near strong resistance around 14,800, possibly limiting the broader market gain in the near-term.
Automakers bucked the market as the dollar slid to 99.39 yen from a two-month peak of 99.80 yen set just few days ago. A strong yen undermines Japanese exporters' competitiveness abroad as well as profits when repatriated.
Toyota Motor Corp fell 0.5 per cent and was the fourth-most traded stock by turnover on the main board. Honda Motor Co Ltd shed 0.8 per cent and Mazda Motor Corp retreated 0.2 per cent.
The benchmark Nikkei is up 42 per cent this year, supported by the Japanese government's aggressive monetary and fiscal stimulus steps to revive the long-stagnant economy.
Copyright: Thomson Reuters 2013
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