The Nikkei average rose 0.62 percent to its highest close in six weeks on Thursday as Japan Tobacco Inc jumped almost 5 percent and exporters such as Canon Inc rose on a softer yen. The Nikkei also drew support from the futures market, where the December contract rose 0.49 percent ahead of Friday's settlement.
Shares in Japan Tobacco, the world's third-largest tobacco group, surged 4.8 percent to 529,000 yen after sources close to the matter said it was likely behind a take-over approach for British Tobacco firm Gallaher Group Plc
Toei Co Ltd jumped 4.3 percent to 681 yen after broadcaster TV Asahi Corp said it would spend 9.17 billion yen ($79.7 million) to buy 14 million shares in Toei, lifting its stake in the movie production firm to 11.3 percent from 1.8 precent.
"The market has been rebounding as economic indicators for October have so far shown strength," said Yoshinori Nagano, chief strategist at Daiwa Asset Management. On Friday, Japan will announce machinery orders for October and a revision to July-September gross domestic product, offering clues on when the Bank of Japan will next raise interest rates.
Remarks this week by top BoJ officials raised expectations the central bank could raise interest rates as soon as at its December 18-19 board meeting. The Nikkei was up 102.08 points at 16,473.36, adding to a 0.65 percent rise in the previous session and marking the highest close since October 27. The broader TOPIX index rose 0.47 percent to 1,622.77.
Trade volume slipped with 1.57 billion shares changing hands, the lowest since November 27. Advancers outpaced decliners 981 to 588. Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Securities Co Ltd, said the market was in a corrective rally as it had been oversold last month on excessive worries about the economy.
Despite weakness in domestic demand, the Japanese economy is expected to keep growing next year led by strong demand from overseas markets such as China, where economic activity is likely to pick up ahead of the 2008 Beijing Olympics, he said.
After the market closed, NTT DoCoMo Inc, Japan's biggest mobile phone operator, said it posted its first net loss of subscribers in November, when KDDI Corp benefited from a new rule to let users keep their phone numbers when changing service providers.
DoCoMo also said jointly with electronics maker Mitsubishi Electric Corp that they would recall 1.3 million mobile phone battery packs as they may overheat and explode. The batteries are made by a subsidiary of Sanyo Electric Co Ltd Nikon Corp gained 1.8 percent to 2,500 yen after it said on Thursday a planned expansion in production capacity for advanced semiconductor steppers next business year has been raised by 50 percent to meet strong demand.
Elpida Memory Inc rose 0.2 percent to 5,650 yen after a company source said the Japanese chip maker will build a new DRAM factory in Taiwan. After the market closed on Thursday, Elpida said a new DRAM factory with partner Powerchip Semiconductor Corp will eventually have the capacity to process 240,000 300-mm silicon wafers a month. Canon rose 3.1 percent to 6,340 yen after the dollar recovered from a one-month low of 114.43 yen struck on Tuesday.
But Internet service provider Nifty Corp, which opened down 1.9 percent in its market debut on the Tokyo exchange's second section, closed at 203,000 yen, below its initial public offering price of 210,000 yen.