The Nikkei share average rose 1.58 percent on Thursday as tech stocks such as Sony Corp followed their US counterparts higher, and Takeda Pharmaceutical Co Ltd bounced back as concerns faded over additional tax payments the company may face.
Still, uncertainty continued to weigh on the market over how the US Federal Reserve, which ends a two-day policy-setting meeting later in the day, sees inflation and the future direction of interest rates, analysts said.
"The Fed is set to raise interest rates this time and to do so again in August. Personally, I doubt credit tightening will be finished the next time it raises rates," said Tatsuo Nishimura, portfolio manager at Meiji Dresdner Asset Management.
The Nikkei share average was up 235.04 points at 15,121.15. It fell 1.88 percent on Wednesday, its biggest one-day percentage drop in two weeks. The broader TOPIX index finished Thursday up 1.33 percent at 1,547.75. Nippon Oil Corp rose after it said it would raise wholesale gasoline prices from July, which may lead to higher earnings, and other stocks with profit growth potential were also in favour ahead of the Fed decision on interest rates.
Japan's biggest oil distributor jumped 5 percent to 813 yen after the company said it would raise wholesale prices of gasoline and other products by up to 7 yen per litre in July from a month earlier. Takashimaya Co Ltd, Japan's biggest department store operator, could come under pressure on Friday.
Takashimaya said after the market closed that its quarterly operating profit fell on rising costs, defying analysts' expectations of a profit increase, but the company kept its full-year forecast. Prior to the March-May results, the shares rose 1.5 percent to 1,445 yen. Government data issued in the morning showed Japan's industrial output fell a steeper than expected 1.0 percent in May from a month earlier, but manufacturers also expect a pick-up in the months ahead, helping the market take the figures in its stride.
Takeda, Japan's No 1 drug maker, rose 3.1 percent to 6,930 yen. The stock fell 2.3 percent on Wednesday after the company said that it had been ordered to pay extra taxes worth $490 million in relation to transactions between it and a joint venture it has with Abbott Laboratories Inc, but that it planned to fight the order.
Mizuho Financial Group Inc, Japan's No 2 banking group and the most active issue by value, gained 1.4 percent to 952,000 yen, extending gains into a seventh straight session. Bigger rival Mitsubishi UFJ Financial Group Inc rose 2.6 percent to 1.57 million yen.
The Tokyo Stock Exchange, which compiles the TOPIX, adjusts component weightings after the end of trading on Thursday to reflect the total number of shares that are actually available for trading. TOPIX Exchange Traded Fund rose 1.2 percent to 1,568 yen, with trading volume of 24 million shares the highest since its listing in 2001, ranking fourth on the Tokyo exchange's first section. Only 1.43 billion shares changed hands on the first section, the slowest day of trade in a month. Advancers beat decliners, 963 to 642.