Tokyo's Nikkei share average rose 1.19 percent on Thursday, hitting a fresh four-year closing high for the fourth time in five sessions, as foreign investors jumped back into the market.
Drug maker Eisai Co Ltd hit a lifetime peak after a brokerage upgrade and steel makers resumed their advance, led by Sumitomo Metal Industries Ltd, due to strong earnings prospects from higher product prices.
The steel sector climbed 3.5 percent, the biggest winner among the Tokyo bourse's 33 industries, as a UBS upgrade on South Korea's POSCO underlined investor optimism about its Japanese counterparts.
The Nikkei gained 152.53 points to 12,986.78, its highest close since June 22, 2001, after retreating 67.7 points the previous day.
The benchmark has risen 13 percent so far this year, compared with a 15 percent increase in the pan-European FTSEurofirst index and a 2.2 percent fall in the US Dow.
The broader TOPIX index put on 1.14 percent at 1,327.29, its highest finish since May 30, 2001.
The Nikkei started the morning in negative territory after caution about the speed of the benchmark's latest rally prompted investors to sell off major banks and other recent gainers.
But concern was soon outweighed by the urge to go bargain-hunting.
Some analysts said hawkish comments for a second straight day from Bank of Japan Deputy Governor Kazumasa Iwata helped buyers.
On Wednesday, Iwata said the central bank was "very close" to ending its super-loose monetary policy.
Profits at the top 300 non-financial firms are expected to grow by 4.5 percent in 2005/06 from a year earlier, Daiwa Institute of Research said last week, lifting its forecast from the 3.1 percent it estimated in June.
Sumitomo Metal, Japan's third-biggest steel maker, soared 5.7 percent to 299 yen, an eight-year high, becoming the most active issue by value on the Tokyo bourse's main board.
Nikko Citigroup equity strategist Tsutomu Fujita said in a report on Wednesday that it was one of the companies most capable of boosting dividend payments this business year.
Eisai was up 4.1 percent at a record 4,550 yen after Daiwa Institute of Research upgraded it on better earnings prospects, citing the firm's Aricept medicine for Alzheimer's disease among other factors.
Electric wire and cable maker Furukawa Electric Co Ltd jumped 6.4 percent to 549 yen. Credit Suisse First Boston on Wednesday initiated coverage of Japan's cable sector with an "overweight" stance, given a recovery in the sector's earnings. It assigned an "outperform" rating to Furukawa.
In contrast, NTN Corp lost 2.8 percent to 658 yen. Goldman Sachs said on Wednesday it saw an increased risk of 2005/06 earnings falling short of guidance at bearing companies such as NTN, NSK Ltd and Koyo Seiko Co Ltd, due to a rise in raw material prices.
After the market closed, the Tokyo bourse said Tokyo Star Bank, rescued by foreign investors in 2001, would list its shares on October 25, in what would be Japan's second-biggest initial public offering this year worth an expected $670 million.
Trade volume surged to 3.01 billion shares, not far off the Tokyo Stock Exchange's record of 3.04 billion set last Friday. Advancers beat decliners 1,096 to 444.
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