The Nikkei average eked out a 0.08 percent gain to end at its highest in nearly four months on Tuesday as Daiichi Sankyo Co Ltd and Nikon Corp rose on brokerage upgrades, but shipping and airline stocks fell on worries about higher fuel costs.
Kawasaki Heavy Industries Ltd rose 1.6 percent to 510 yen on news about its shipbuilding joint venture with China's COSCO Group. Meanwhile, game maker Nintendo Co Ltd hit a record high of 44,000 yen, partly on a softer yen, before ending up 1.9 percent at 43,900 yen.
With the benchmark Nikkei rising for a fourth straight session and now just 0.7 percent off this year's high of 18,300 marked in late February, investors appeared to be stopping short of pushing prices higher.
"I don't see any major negative factors that would drag down share prices," said Katsuhiko Mori, senior portfolio manager at Daiwa SB Investments. "But investors, especially foreign investors who invest in other overseas markets, won't buy Japanese stocks if the Nikkei PE multiple is at near 20."
The Nikkei is trading at a PE of 22, compared with 17 for the Dow Jones industrial average and 12 for the FTSE 100 index of Britain's leading shares, according to Reuter's data.
The Nikkei added 14.09 points to 18,163.61, its highest close since February 26. Meanwhile, chip stocks may draw attention on Wednesday as an industry group said after the market closed that orders for Japanese equipment used to make microchips fell short of sales in May for the second straight month on slowing chip demand. Trade volume fell slightly with 1.9 billion shares changing hands, compared with a daily average volume of 2.2 billion shares in May.
But Daiichi Sankyo, one of Japan's top three pharmaceutical firms, jumped 4.4 percent to 3,360 yen after Daiwa Institute of Research lifted its rating on the stock to "1" from "2" and set a target price of 4,000 yen. Shares of Nikon gained 2.9 percent to 3,510 yen after Daiwa Institute of Research raised its rating on the maker of digital cameras and steppers used to make semiconductors and liquid-crystal displays to "2" from "3".
Rises in oil prices triggered concern about higher fuel costs. US crude oil futures ended above $69, the highest settlement since September 2006, on fresh concerns about interrupted supply or the threat of interruption in Nigeria and an oil workers' strike threat in Brazil. All Nippon Airways Co Ltd lost 1.1 percent to 467 yen.
Japan's largest shipper Nippon Yusen KK fell 1.5 percent to 1,143 yen and its peer Mitsui O.S.K. Lines Ltd dropped 2.5 percent to 1,580 yen. The shipping subindex ISHIP.has risen 38 percent this year, becoming the best performing sector, and is prone to profit taking. It ended the day down 2.35 percent. Among losers, Internet firm Rakuten Inc declined 1.6 percent to 44,300 yen after the Nikkei newspaper reported on TgeStation.
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