The Nikkei average rose 0.82 percent on Monday to book its highest close in five months as Shin-Etsu Chemical Co Ltd extended gains after reporting strong earnings results, while property shares also drew buyers for their bright earnings prospects.
Softbank Corp, the biggest contributor to the Nikkei's gain, rose 3.5 percent to 2,685 after the Internet conglomerate said it would hold a briefing on its mobile phone strategy at 6:30 pm (0930 GMT).
Komatsu Ltd, on the other hand, was the biggest drag on the benchmark as poor earnings at rival Caterpillar Inc fuelled worries about Komatsu's profit growth. The Nikkei climbed 137.19 points to 16,788.82, its highest close since May 11. The broader TOPIX index was up 0.93 percent at 1,659.39, the highest since May 15.
Shares of Shin-Etsu Chemical, which have been up on hopes for strong earnings, managed to remain higher despite concerns about profit-taking, underlining strong market sentiment.
It ended up 2.2 percent at 8,050 yen after raising its earnings forecast. "The fact that Shin-Etsu's share price did not fall reflects investors' high expectations for strong earnings from other firms," said Yumi Nishimura, manager of the investment advisory section at Daiwa Securities SMBC Co Ltd "It's not a bad start."
Shigeharu Shiraishi, a managing director at Societe Generale Asset Management, expects the earnings momentum to remain intact into the financial year starting next April. "There is a high possibility that Japanese companies will be able to post double-digit growth next fiscal year if the world economy starts to expand slowly following its soft landing," he said.
He said the break-even point - when products stop costing money to produce and sell and start generating profits - at Japanese companies has become competitively low. "With a low break-even point, companies can make profits even with slight increases in sales," he said.
Yahoo Japan Corp, the country's most popular Web portal, said its net quarterly profit for July-September was up 22 percent on the same period last year. Disappointing results were unveiled by Kao Corp, Japan's biggest household products maker, which said after trading hours that it booked an 8 percent decline in first-half profit on costs related to acquiring Kanebo Cosmetics, and cut its annual forecast.
Meanwhile, the property index IRLTY.outperformed other sector indexes, with Sumitomo Realty & Development Co Ltd surging 4.2 percent to 3,990 yen. Goldman Sachs last week raised its 12-month target price for the firm to 4,441 yen from 4,122 yen, saying its operating profit could grow at a double-digit annual pace over the next three years.
Nishimura of Daiwa Securities SMBC said many technology firms are expected to announce earnings results this week and investors are shopping around for shares of companies reliant on domestic demand such as banks. Mizuho Financial Group Inc rose 2.2 percent to 941,000 yen. Komatsu fell 4.3 percent to 2,120 yen after Caterpillar Inc missed earnings expectations on Friday and cut its forecasts for 2006 and 2007 on slowing demand.
Trade remained relatively quiet with just 1.57 billion shares changing hands on the Tokyo exchange's first section, compared with last month's daily average of 1.72 billion. Advancers beat decliners by a ratio of nearly three to one.