Tokyo stocks are expected to rise above the key 11,000 mark this week as investors again buy into technology and other blue chip shares on expectations of improved corporate earnings.
Markets will open on Tuesday after Monday's national holiday.
Foreign investors are back in full force and individual investors, who trimmed their holdings in December to ease tax burdens, are now buying, said Kazunori Ohtomo, a senior fund manager at STB Asset Management.
"Now is a time when you can buy stocks without much worry."
The Nikkei average closed at an 11-week high of 10,965.05 on Friday, after briefly rising above 11,000, a level seen as a key resistance.
Analysts expect the Nikkei to trade between 10,600 and 11,200 points this week and blue chips, particularly exporters and technology companies, are again likely to draw buyers.
Several technology firms rose last week, with Matsushita Electric Industrial Co closing on Friday at 1,545 yen, its highest since September last year, and Hitachi Ltd surpassing last year's closing high to end at 710 yen.
Masaaki Higashida, deputy general manager at Nomura Securities Co Ltd, said the Nikkei may even challenge last year's closing high of 11,161.71 this week, but such a rise could trigger profit-taking ahead of book closings by most Japanese firms at the end of March.
Joji Maki, a senior director at Baring Asset Management Japan, said shares in high-tech firms may rise on the back of future growth potential but gains may be limited.
"I don't necessarily think technology shares are cheap," he said.
Massive intervention by the Bank of Japan to halt a rise in the yen last week provided support for the stock market, yet many said a strong yen would remain a concern.
Investors will cast a close eye on third-quarter earnings announcements due to begin near the end of January to see how the yen's recent strength will be reflected in companies' scorecards.
Maki said he would pay special attention to Canon Inc, 75 percent of whose sales are generated overseas, since it would report earnings for the full year to December and projections for this business year. It will report on January 29.
"Canon will be the first to go, and it gives you a chance to see the yen's impact," he said.
Traders pointed to exchange data released last Thursday showing that trust banks became net buyers between December 22 and 26 for the first time in eight months.
Many took this as a positive sign that Japanese pension funds may be ready to buy shares, becoming another force for the stock market to roll higher.
Kenji Kobata, managing director at the research department of Ace Securities Co, said selling by major financial institutions to unwind cross-shareholdings was expected to be around 4 trillion to 4.5 trillion yen ($38 billion to $42 billion) in the financial year ending in March.
But the amount is likely to fall to 1.5 trillion yen in the year starting in April, he added.
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