The Nikkei average rose 2.5 percent on Wednesday, bouncing back from the previous session's 15-month low as a rally on Wall Street and a softening yen spurred buying of financial and other battered stocks. Canon Inc climbed 4.5 percent 5,600 yen on its bid for flat panel-making equipment supplier Tokki Corp.
While Tokyo Electron Ltd climbed 4.7 percent to 6,250 yen after reporting a 61 percent surge in quarterly profit. Financial stocks led the gains while almost all sectors rebounded, but market players said investors were simply buying back stocks to close short positions.
"The yen is a big factor today, but it's a different matter whether worries about the US subprime mortgage problem have been eased," said Hiroaki Kuramochi, managing director at Bear Stearns (Japan) Ltd. He said currency moves now serve as a yardstick to gauge the global money flow and investors' views on the US economy.
The Nikkei rose 372.93 points to end at 15,499.56, snapping an eight-day losing streak. But it is still only 3.4 percent above this year's low of 14,988.77 marked on Tuesday. The broader TOPIX index gained 2.95 percent to 1,497.71.
Kuramochi said investors should stay cautious as there is still a chance the Bank of Japan could raise interest rates and the dollar could fall on signs of a slowdown in the US economy, contributing to the yen's appreciation.
Sharp rises of the yen are a worry, but Yoshinori Nagano, chief strategist at Daiwa Asset Management, said Japanese corporate earnings would not suffer much as long as the dollar remained above 105 yen.
Trade volume was moderate with 2.07 billion shares changing hands, compared with an average daily volume of 1.98 billion shares in October. The dollar regained some ground against the yen, trading around 111.35 yen after falling as low as 109.10 yen on Monday.
Shares of exporters benefited from the yen's fall, which makes their products competitive overseas and boosts the value of overseas earnings when brought home. Toyota Motor Corp rose 3.7 percent to 6,240 yen and Honda Motor Co added 2.1 percent 3,880 yen. In the financial sector, Mizuho Financial Group Inc jumped 6.4 percent to 550,000 yen and Mitsubishi UFJ Financial Group Inc rose 6.3 percent to 967 yen.
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