The Nikkei rose 0.31 percent on Monday as Honda Motor Co and other exporters rose following gains in US stocks, while Mitsui Sumitomo Insurance Co Ltd and its peers rose on expectations it would benefit from higher yields on government bonds.
But investors held back ahead of a Bank of Japan policy meeting on Thursday and Friday. The 10-year government bond yield was near a 10-month high and bond futures were near an 11-month low on lingering worries over a BOJ interest rate hike in coming months.
"Bond yields are rising and the global economy is picking up, which should be a good thing for the stock market," said Masaki ISO, head of Japanese equities at Yasuda Asset Management Co Ltd "Conditions are right for Japanese stocks to rise." The Nikkei added 55.39 points to 17,834.48 and the broader TOPIX index rose 0.28 percent to 1,761.15.
But investors are cautious and not willing to jump into the market yet, said Tsutomu Yamada, a market analyst at Kabu.com Securities Co. "There is a BOJ meeting this week, and investors are still concerned about whether the US stock market has fully recovered. The US treasury market is no longer volatile but still unstable," he said. ISO of Yasuda Asset Management said the market gains were capped due partly to falls in commodity share prices, which should be rising if the global economy is expanding.
He said changes in the London Metal Exchange's lending rules were behind the drops and this should only have a short-term effect. The London Metal Exchange last week changed its rules to free ups more metal.
The nickel market has been very tight due to low stocks in LME warehouses and strong demand from China. Sumitomo Metal Mining Co, Japan's major nickel and copper producer and the biggest fallen in the Nikkei 225, gave up 5.8 percent to 2,675 yen after nickel prices tumbled to their lowest levels since March. Trade volume was moderate with 2 billion shares changing hands. Advancers outnumbered declines 897 to 691.
Mitsui Sumitomo Insurance gained 3.2 percent to 1,694 yen and its peer Millea Holdings Inc rose 1.3 percent to 5,450 yen. Insurance companies manage portfolios by investing part of the money they collect from policyholders as premiums in government bonds.
So higher bond yields should give them more interest income. Expectations of rising interest rates also fuelled hopes that banks' lending rates may rise, helping Mitsubishi UFJ Financial Group Inc gain 0.7 percent to 1.4 million yen.
Government revised GDP data showed Japan's economy expanded 0.8 percent in January-March, faster than the preliminary 0.6 percent reading, but the market took the data in its stride.
A positive outlook for the global economy and rises in US stocks boosted some Japanese exporters. Honda Motor Co Ltd rose 2.2 percent to 4,250 yen and Fujifilm Holdings leapt 3.1 percent to 5,330 yen. Ajinomoto Co, Japan's top maker of seasonings, said after the market closed that it would make drinks maker Calpis Co a wholly owned subsidiary through a share swap worth about 62 billion-yen.
One notable stock was Kenwood Corp, which climbed 1.5 percent to 205 yen after sources familiar with the matter said on Saturday that Matsushita Electric Industrial Co Ltd was in talks with Kenwood over the sale of its stake in JVC after a deal with US private equity firm Texas Pacific Group fell through. Shares of JVC plunged 9.9 percent to 445 yen.
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