The Nikkei average reversed losses to close 0.25 percent higher on Wednesday as Softbank Corp advanced, helped by improved sentiment among individual investors, and Toshiba Corp rose on a better earnings outlook.
Market analysts said individual investors, cheered by a jump in shares of online retailer Rakuten Inc after a brokerage upgrade expanded their buying to other Internet stocks as well as small-cap issues.
"The rally in shares of Rakuten brightened sentiment as a whole," said Hiroaki Kurimoto, managing director at Bear Stearns (Japan). The Nikkei rose 41.41 points to end at 16,653.00. The broader TOPIX index was up 0.05 percent at 1,638.74.
The Nikkei fell as low as 16,466.74 in tandem with a pause in a record-breaking rally in US blue chips on Tuesday on renewed concerns about the health of the world's largest economy. Despite on Wednesday's small gains in Tokyo, Yoshinori Nagano, chief strategist at Daiwa Asset Management, said the Tokyo market would come under pressure on Thursday if the Dow extended its retreat.
"If New York takes a breather, I think so should Tokyo," Nagano said. "A global equity run-up has been the main support to the Tokyo market." The US consumer price index and housing starts for September due are awaited for clues on the outlook for US interest rates and its impact on the US economy, a key market for Japanese exports, analysts said.
Trade volume rose for the first time in three sessions with 1.60 billion shares changing hands on the Tokyo exchange's first section. That was still well below September's average of 1.7 billion shares per day. Decline's edged past advancers 786 to 761.
Shares of Rakuten jumped 9.5 percent to 46,250 yen after Lehman Brothers on Wednesday lifted its rating on Japan's largest online shopping mall to "1 overweight" from "2 equal weight" saying the stock looked undervalued at current levels.
Third-quarter results are likely to mark a bottom for the company's earnings, which are likely to make a strong recovery during the year to March 2008, Lehman said in a note to clients. "The Lehman upgrade has sparked this buying," said Ken Masuda, a senior dealer in equities at Shinko Securities. "It's just the mood of the market at the moment."
Among other start-up companies, Mix Inc, operator of Japan's most popular social network site, gained 9.7 percent to 2.27 million yen. Internet advertising firm Cyber Agent Co Ltd rose 9.2 percent to 154,000 yen. Internet and communications conglomerate Softbank was the biggest contributor to the Nikkei's rise, rising 5.6 percent to 2,645 yen.
While Softbank is hardly a small-cap, it is a favourite of Japan's retail investors many of whom are also active traders of smaller stocks. Retail investors had licked their wounds as small and medium-cap stocks hit this year's lows last week, market analysts said.
Shares of Toshiba rose 2.8 percent to 763 yen following an upward revision in the company's half-year earnings forecast due to a strong performance in its power business. In contrast, Tokyo Electron Ltd, the world's second-largest supplier of tools used to make microchips, lost 2.2 percent to 9,290 yen. It was hit by a downgrade by brokerage HSBC and concerns about lower earnings after chip manufacturer Intel Corp cut its 2006 outlook for capital spending.
LEASING FIRMS IN FOCUS Leasing stocks lured buyers with Tokyo Leasing Co Ltd up 5.3 percent at 1,596 yen, after business daily Nihon Keisei said on Wednesday two leasing companies affiliated with Japan's Mitsubishi UFJ Financial Group (MUFG) are close to agreeing on a merger.
A union of Diamond Lease Co and UFJ Central Leasing Co would create the industry's third-biggest firm. The Tokyo Stock Exchange suspended trading in both Diamond Lease and UFJ Central Leasing until the close.
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