The Nikkei average ended up 0.50 percent on Friday as hopes for strong earnings lifted Sony Corp and other blue chip shares, while Kyocera Corp and cellphone-related shares rang up gains on growing demand.
But the rise was curbed as sharp falls in small-cap markets weighed on the overall market, encouraging investors to lock in profits ahead of the weekend.
Michael Coates, director of equity sales at KBC Financial Products, said investors seemed to be switching out of small-cap stocks to large-cap stocks with liquidity.
"So if anything goes wrong, if there is a Livedoor-type event or if there is any event on the horizon which comes out, they're not going to be stuck with stocks they can't get out of," he said, referring to Livedoor Co Ltd, whose former chief, Takafumi Horie, was arrested earlier this year on suspicion of violating securities laws. "People are being quite risk-averse at the moment," Coates said.
The Nikkei average finished up 86.43 points at 17,403.96. For the week, the Nikkei added 0.99 percent. The broader TOPIX index rose 0.49 percent on Friday to 1,756.40.
Jun Nishizaki, chief portfolio manager at Nissay Asset Management, said sentiment among retail investors, who have been the main players in small-cap markets, appears sour, helping keep overall market sentiment subdued.
"The poor performance in the small-cap markets has an impact on retail investors psychologically. The large-cap market seems to lack the punch I'd like to see even though it is at high levels," he said.
Sony rose 3.5 percent to 6,150 yen, extending gains into a fourth day as the company's plan to more than double its LCD TV shipments this business year raised expectations for healthy profit prospects.
Mobile-phone-related stocks rose after Finland's Nokia reported better-than-expected quarterly sales and earnings. Kyocera added 3.3 percent to 11,500 yen and electronics components maker Murata Manufacturing Co Ltd gained 4.1 percent to 8,450 yen.
Auto stocks ramped up after J.P. Morgan began coverage of the Japanese auto industry on Thursday with a "bullish sector stance". Toyota Motor Corp rose 2.7 percent to 6,900 yen and Honda Motor Co surged 4.6 percent to 8,120 yen. Kenichi Azuma, an equity strategist at Cosmo Securities Co Ltd, said record oil prices have renewed interest in Japanese auto makers, which have been in the vanguard of hybrid cars. "The more oil prices go up, the more Japanese cars will be sold," he said.
Shares of Sawai Pharmaceutical Co Ltd rose 0.7 percent to 4,330 yen as the generic drug maker's managing director told Reuters on Friday its annual sales target of 30 billion yen could be achieved ahead of plan for 2007/08.
After the market closed, NEC Electronics Corp widened its loss forecast for the year ended in March while NEC Corp slashed its full-year profit forecast.
NEC Electronics ended up 1.3 percent at 4,640 yen and NEC also rose 1.3 percent to 873 yen.
A series of disappointing earnings compounded selling in small-stock shares. Cable broadcaster Usen Corp tumbled 16.7 percent to 1,995 yen on the Osaka Hercules market for start-ups after cutting its profit forecasts.
Web-based mobile content provider Index Corp, which on Wednesday revised down its group recurring profit forecast, fell 10.8 percent to 148,000 yen on the Jasdaq market for start-ups, adding to an 18 percent fall the previous session.
The Nikkei Jasdaq average was down 1.3 percent at 2,623.70 and the Tokyo Stock Exchange's Mothers market for start-ups dropped 5 percent to 1,694.97.
The Jasdaq has fallen 2.5 percent this year while the Mothers has plunged 33 percent. That compared with an 8 percent rise in the Nikkei share average.
Some cautious views are also emerging in the market.
Tsuyoshi Nomaguchi, a strategist in Japanese equity research at Daiwa Securities Co Ltd, said he expects the market to fall toward the summer with oil prices likely to move up during the hurricane season and the yen likely to strengthen as the US rate hike cycle appears to be nearing an end.
"It's not going to be a hot summer for the market. Although, that could well be the best time to scoop up stocks," he said.
Trade rose to its most active level in a week, with 1.76 billion shares changing hands on the Tokyo exchange's first section, although that was still well below last year's daily average of 2.07 billion shares. Advancers beat decliners, 883 to 702.
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