The Nikkei had its highest close in nearly two and a half months on Thursday as ratings agency Moody's upgraded Japan's sovereign debt, lifting the mood for stocks in general, while shipping firms such as Mitsui OSK Lines Ltd jumped on rising freight rates.
Sony Financial Holdings Inc, Sony Corp's financial unit, made its market debut on Thursday, opening up 5 percent from its IPO price of 400,000 yen. It finished the day at 415,000 yen.
But one of the biggest drags on the market was Acom Co Ltd and other consumer lenders after the Nikkei business daily reported that a growing number of local governments are trying to seize refunds for overcharged interest owed by the companies to their customers.
The Bank of Japan voted to keep interest rates unchanged as widely expected, as it awaits more evidence on fallout from US subprime woes before pushing on with its plans to raise rates.
"Asia money flew into the market, prompted by Moody's upgrade as a country's rating is symbolised by its bond, which is JGB in Japan's case," said Tsuyoshi Segawa, equity strategist at Shinko Securities.
He said the adjustment of positions before the settlement of options on Friday also buoyed the overall market. Ken Masuda, senior dealer in equities at Shinko Securities, said Sony Financial's strong debut also brightened the mood of the market.
The benchmark Nikkei added 1.6 percent or 281.09 points to 17,458.98, the highest finish since July 26. The broader TOPIX index climbed 1.2 percent or 19.34 points to 1,677.52, its highest close since August 9.
Trade was modest with 2.1 billion shares changing hands on the Tokyo exchange's first section, compared with a daily average of 1.9 billion shares last month. But turnover was 3.02 trillion yen, topping 3 trillion yen for the first time since September 14. Advancing stocks outnumbered decliners by a ratio of more than three to one.
Moody's raised Japan's domestic-currency government bond rating to A1, citing expectations for further fiscal reform by the government that could help ease a huge public debt burden. After the market close, Bank of Japan Governor Toshihiko Fukui said price pressures were growing and that there was no change in the central bank's stance on gradually adjusting interest rates in line with economic conditions.
Nippon Yusen KK sailed 5.1 percent higher to 1,213 yen, leading gains by ocean freight firms on a record-breaking run by the Baltic dry index. Among other gainers, Eisai Co Ltd added 2.6 percent to 5,490 yen after a newspaper reported the drugmaker's first-half operating profit likely climbed 9 percent to a record of about 54 billion yen ($461 million) on higher sales of its Alzheimer's drug Aricept at home and abroad. Shares of Nintendo Co Ltd jumped 5 percent to 69,100 yen after the company said on Wednesday it would start selling its "Wii Fit" home fitness game in Japan in time for the critical year-end shopping season.
Earlier the stock hit a record high of 69,500 yen. After the market close, Japanese clothing retailer Fast Retailing Co said its annual operating profit fell a bigger-than-expected 8 percent on sluggish sales, but it forecast a 12 percent rise for this business year.
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