Japan's Nikkei stock average ended at a three-month high on Tuesday but worries about overheating offset the Bank of Japan's decision to ease monetary policy, paring much of the market's gains in late trade.
"We got a little pop from the BOJ news, but that was soon outweighed by worries that the market's recent climb had been a little too sharp, especially for tech issues," said Ken Masuda, senior dealer at Shinko Securities.
The Bank of Japan unexpectedly raised its target for the current account deposits that banks leave at the central bank to 30-35 trillion yen ($280-326 billion) from 27-32 trillion yen, meaning there will be even more liquidity in the banking system.
The Nikkei ended up 0.61 percent at a three-month closing high of 11,103.10, after rising above the 2003 closing high of 11,161.71 hit last October, led by gains in tech issues such as Advantest Corp. The broader TOPIX index rose 0.35 percent to 1,075.94.
Advantest, Japan's biggest maker of semiconductor-testing devices, was up 2.72 percent at 9,440 yen, while broadband services firm and Internet investor Softbank Corp closed up 6.98 percent at 4,140 yen.
Analysts said there was a good chance of upward revisions in earnings when Japan's quarterly reporting period gets into full swing next week, as an ongoing recovery in the economy and the stock market could well persuade firms to upgrade their views.
Some fund managers said that could give extra legs to the Nikkei's recent rally.
"I think there's a good chance the Nikkei will test 12,000 by book closing in end-March, led by tech companies enjoying strong earnings growth," said Kazunori Ohtomo, senior fund manager at STB Asset Management.
A halt in the recent rise of the yen also supported shares in exporters, which rely on foreign markets for a large part of their sales and face an erosion of overseas profits when the yen is stronger. The dollar rose briefly above 107.50 yen to its highest since January 9 on Tuesday, but is still not that far above three-year lows of around 105.70 set last week.
Honda Motor Co Ltd jumped 2.36 percent to 4,780 yen, helping lift the sector index by 1.4 percent and making it the biggest winner for the day.
Another notable winner was Chugai Pharmaceutical Co, which jumped 9.76 percent to 1,620 yen after the Japanese affiliate of Roche Holding AG lifted its profit forecast for the April-December period on Monday amid restructuring after a merger with Roche's Japan unit in 2002.
The pharmaceutical sector is down 0.3 percent this year to date, lagging the Nikkei's four percent rise.
"I'm very wary of buying tech shares after their recent gains, but I think pharmaceutical shares, which have lagged the Nikkei's rally, still have room to rise," said Shinko's Masuda.
A total of 1.426 trillion yen ($13.3 billion) of shares was traded on the main board, up 13 percent from the previous day and the highest value since January 9.
Gainers outnumbered decliners 783 to 599.
Hoya Corp, a maker of digital camera lenses, and Japan's leading internet portal Yahoo Japan Corp are among firms set to release quarterly earnings on Wednesday.
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