Japanese shares rose more than four percent in the past week, with the benchmark Nikkei 225 index finishing at its highest level in 2012, as Japan's new government vows to turn around the economy. For the week to December 28, the Nikkei rose 4.58 percent, or 455.12 points, to 10,395.18.
It was also the Nikkei's best finish since Japan's 2011 quake-tsunami disaster, and nearly 23 percent up over the past year - the index's strongest annual performance since 2005.
The Topix index of all first-section shares climbed 3.25 percent, or 27.08 points, to 859.80.
The year-end rally came as Japan's new conservative government led by Shinzo Abe took power, pledging to inject some life into Japan's long-suffering economy, the world's third-largest.
The dollar rose to its highest level in more than two years against the yen in forex trade, cheered by investors as a weaker yen helps Japanese exporters by making their products more competitive overseas.
Abe, whose Liberal Democratic Party won a landslide election victory this month, has repeatedly said he would pressure the Bank of Japan for more easing measures - comments that have helped bring down the value of the yen. The market's rise came even in the face of grim economic data which showed Japan may have slipped into recession in the third quarter.
"As the Japanese economy isn't in a great shape, pressure will likely continue on policymakers to undertake more economy-stimulating steps," said Masamichi Adachi, senior economist at JPMorgan Securities Japan.
Markets will also be looking out for a last-minute deal to avert the US fiscal cliff impasse, with a package of tax hikes and spending cuts due to come into effect on January 1, dealers said.
"The market has factored in the possibility that US budget talks will spill over to 2013," SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires. "It remains a focus of attention, but players are not willing to let a good Japan trade opportunity go to waste." The Tokyo market will be closed until Friday, January 4.
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