The Nikkei share average climbed to a seven-month closing high above the 9,500 mark on Thursday, encouraged by a yen kept weaker through persistent speculation that the central bank would adopt bolder action to pull Japan out of deflation under a likely new government. The Nikkei rose 0.8 percent to 9,545.16 points, the highest closing level since April 26.
But Thursday's rally took the index to "overbought" territory, with its 14-day relative strength index at 70.4. Seventy or above is deemed overbought, which often signals a possible pull back in the near-term, analysts said. "When the market falls, it attracts buying soon, but when it starts rising again, investors take profits. Unless there are more clear developments which would convince foreigners that the BoJ will take action for monetary policy, it will be difficult to see stable gains," said Shun Maruyama, chief strategist at BNP Paribas, adding that foreigners were unlikely to take big positions before they go on Christmas holidays.
Japan's conservative Liberal Democratic Party (LDP) looks on course to win a surprisingly solid majority in a December 16 parliamentary election, media polls showed on Thursday, returning to power with a hawkish former premier at the helm. Former Prime Minister Shinzo Abe, who heads the LDP and would likely return to the top job if the party wins, is calling for radical monetary easing by the Bank of Japan (BoJ) to beat persistent deflation and a strong yen.
"We expect the avoidance of the fiscal cliff in the US, improvement in the revision index accompanying yen weakness and a bottoming in the domestic economy to drive gains in Japanese equities through spring 2013," Citigroup wrote in a research note, adding that it expects the Nikkei to reach 9,900 and the Topix to hit 820 then. The broader Topix advanced 0.9 percent to 788.74, in fairly high volume, with 2.0 billion shares changing hands in versus 1.84 billion for Wednesday and last week's daily average of 2.01 billion.
Foreign investors were net buyers of Japanese equities last week for the third straight week. They bought a net 184.3 billion yen ($2.2 billion) of shares in the week through December 1, down from 275.8 billion yen in the previous week, finance ministry data showed. Exporters in demand included Toyota Motor Corp, camera and printer maker Canon Inc, air conditioner maker Daikin Industries Ltd and Honda Motor Co, up between 1.0 and 3.1 percent.
Sharp Corp surged 9.9 percent to a 2-1/2 month high after a Taiwan newspaper quoted the chairman of Hon Hai Precision Industry as saying that Qualcomm's tie-up with the struggling TV maker will not affect Hon Hai's talks with Sharp to become its biggest shareholder. The benchmark Nikkei is up 12.9 percent this year, in line with a 12.1 percent rise in the US S&P 500 and a 13.2 percent gain in the pan-European STOXX Europe 600.
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