The Nikkei rose 0.42 percent on Friday to close above 17,500 for the first time since July 2000 as technology stocks rose on earnings hopes and metal stocks gained on high commodity prices.
But Honda Motor Co Ltd and recent gainers were sold on concerns that the market has risen too far too fast. Some traders also sold stocks to square positions ahead of US jobless data later on Friday.
The Nikkei rose 74.04 points to 17,563.37. The benchmark has added nearly 1,100 points in the last two weeks. The broader TOPIX index was up 0.45 percent at 1,783.72, its highest close since November 1991.
Soichiro Monji, a strategist at Daiwa SB Investments, said technology shares have underperformed the TOPIX for the last five years, and investors now see the upside potential in the sector.
"There are high hopes for electronics firms' earnings ... Monday's tankan survey also showed sentiment at these companies is improving," he said.
Still, Monji said some technical charts indicate that the market is overheated and may struggle to advance next week.
The rise in techs was partly aided by the technology-heavy Nasdaq Composite Index hitting a five-year closing high.
Electronic components maker Kyocera Corp rose 3.5 percent to 11,030 yen and chip-testing equipment maker Advantest Corp gained 1.6 percent to 15,210 yen.
NEC Corp shot up 4.7 percent to 892 yen and Matsushita Electric Industrial Co Ltd was up 0.9 percent at 2,790 yen. NEC said on Friday it was in talks with Matsushita and Texas Instruments Inc over possible co-operation on third-generation mobile phones.
Takahiko Murai, a general manager of equities at Nozomi Securities, said blue chip shares fared well partly because of strong demand from institutional investors, especially those managing index-tracking funds.
"It's quite difficult to manage active funds in a market like this. Big money is coming into the TOPIX's core 30 or 100 shares," he said. In the metal sector, Sumitomo Metal Mining Co Ltd climbed after rises in copper and gold prices. Sumitomo Metal Mining ended up 4.6 percent at 1,725 yen.
Another notable gainer was Ishikawajima-Harima Heavy Industries Co Ltd, which surged 5.9 percent to 414 yen after Nikko Citigroup started coverage of the stock with a "buy/high risk" (1H) rating and set a target price of 480 yen. On the other hand, Honda Motor slipped 0.1 percent to 7,840 yen after hitting an all-time high of 7,870 on Thursday.
In the property sector, Sumitomo Realty & Development Co Ltd fell 2.2 percent to 3,130 yen after brokerage Credit Suisse downgraded its rating on Japan's third-biggest real estate company to "underperform" from "neutral" on Thursday.
Trade activity was relatively slow, with 1.89 billion shares changing hands on the Tokyo exchange, compared with last year's daily average of 2.07 billion shares. Advancers beat decliners 934 to 599.