Japanese stocks may rise above the 12,000 mark this week as investors buy shares in exporters and technology companies after surprisingly strong US jobs data buoyed Wall Street and boosted the dollar against the yen.
Analysts said the benchmark Nikkei average was likely to trade between 11,700 and 12,000, after rising 1.13 percent on Friday to end at 11,815.95 - its highest close since June 3, 2002.
"The outcome of the US jobs data was much better than the market had expected, and it also diminished fears that the dollar might soon fall below the 100-yen line," said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities.
"Wall Street's gains and the dollar's bounce will now encourage investors to shift their buying target to techs and exporters after they have hoarded a wide range of domestic stocks," he added.
Others also forecast that buying in index heavy-weight exporters and techs would lift the Nikkei, but some voiced concerns over the sustainability of the rise due to a cloudy outlook for currency movements and rising speculation of a possible interest rate hike in the Unites States.
US stocks closed higher on Friday, driving the major market indices to their biggest weekly percentage gains since October 2003, after the Labour Department said 308,000 jobs were created in March, far outstripping economists' forecasts for a gain of about 103,000.
The Dow Jones industrial average closed up 0.94 percent at 10,470.59, while the technology-laced Nasdaq Composite Index gained 2.09 percent to 2,057.17.
The dollar rose to the mid-104 yen level, recovering from recent four-year lows, as the jobs figures reassured investors the world's biggest economy was on a steady recovery path.
In Japan, the central bank is set to hold a two-day monetary policy meeting from Thursday, but the Bank of Japan is widely expected to keep its monetary policy unchanged as it sees no reason to ease given mounting evidence of an economic pick-up.
After the rebound in the dollar against the yen, analysts expect buyers to snap up auto-makers and technology shares, which were avoided last week due to the yen's sharp appreciation against the US currency.
Japan's largest auto-maker, Toyota Motor Corp, for example, lost 1.6 percent and rival Honda Motor Co Ltd gave up 3.3 percent last week - against the Nikkei's 0.38 percent rise for the week - as the dollar slipped to a four-year low of 103.40 last Wednesday.
Some were cautious, however, the yen might advance against the dollar again given improving economic fundamentals in Japan, large foreign buying of Japanese stocks, and Japanese authorities apparent scaling back of intervention.
Fuelling optimism over Japan's economic recovery, the Bank of Japan's quarterly "tankan" survey of business sentiment released last Thursday showed more companies were optimistic about business conditions in March than at any time in the last seven years.
A Reuters poll also showed that Japanese companies probably received more machinery orders in February than a month before as economic recovery and improving profits lifted investment.