Japan's Nikkei stock average climbed 2.6 percent, hitting its highest level since a post-quake panic sell-off as the yen softened against the dollar, but investors said the gains may be short-lived as bargain-hunting by foreigners peters out. Market players also said the Bank of Japan's purchases of exchange-traded funds under an asset purchase programme adopted to bolster the economy was lending some support to the market ahead of the business year-end on Thursday.
Inflows from passive funds and year-end window dressing by institutional investors were also cited as reasons that pushed the Nikkei considerably higher in afternoon trade. But now that the benchmark has regained more than half of the ground it lost in the post-quake rout, foreign funds are buying less aggressively. The Nikkei ended the day up 2.6 percent, or 249.71 points, to 9,708.79. The broader Topix index advanced 1.9 percent to 866.09.
A stronger dollar lifted machinery stocks, electronics makers and post-quake underperformers like Nissan Motor, which jumped 3.8 percent. Nissan has fallen more than 10.4 percent since the earthquake and tsunami hit north-east Japan more than two weeks ago.
Both Nissan and Toyota Motor Corp, which have lost a substantial amount of domestic production due to disruptions in their supply chains, were among the most actively traded shares by turnover on the Tokyo stock exchange's main board. Tokyo Electric Power dropped another 18 percent, adding to a slide to a 47-year low a day earlier as the government pondered whether to nationalise the operator of a stricken nuclear plant.
The utility's credit default swaps have fallen sharply in the past few days, having hit a record high around 475 basis points on Monday. Still, the cost of insuring its debt against default is around 378 , compared to 40 basis points before the quake. Banking stocks also felt Tokyo Electric's pain, slumping on worries about their loans to the company.
The banking sector, down 12.3 percent since the quake, was the second weakest performer on Wednesday, losing 0.6 percent. Mizuho Financial Group, also facing an inspection by financial authorities after it suffered computer system troubles, fell 2.1 percent to 137 yen.
Japanese shares have shed about 7 percent since the March 11 earthquake and tsunami, and a subsequent nuclear safety crisis, triggered the biggest two-day rout in the market since 1987. In contrast, the MSCI index of Asian shares outside Japan has gained 4.7 percent.
Domestic fund managers warned the Nikkei faced more downside risk around May. The dollar rose as a steady rise in US yields gained traction this week after several Federal Reserve policymakers said the central bank would have to start tightening monetary policy soon to avoid inflation. Shares of Hitachi Ltd, soared 8.7 percent to 437 yen in heavy trade after the electronics giant had partially resumed operations at its biggest factory complex with output expected to return to pre-disaster levels next month.
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