The Nikkei average rose 0.47 percent to close at its highest in three months on Friday, as trading firms rose on Morgan Stanley's higher target prices and retail investors bought steel and other value stocks. A strong performance in US stocks also gave investors confidence about the US economy and encouraged them to chase Toyota Motor Corp and other exporters.
Earlier in the day, the Nikkei topped 18,000, recovering about 80 percent of the losses it made during a global stock sell-off in late February. The benchmark is now down just 1.9 percent from this year's high marked just before the sell-off.
"The recent recovery in bank and small-cap shares have given retail investors a buffer and they can now afford to invest in other stocks again," said Kenichi Hirano, operating officer at Tachibana Securities.
"The Japanese market has struggled since the global sell-off in late February, but now concerns about another sell-off have subsided." The Nikkei added 83.13 points to 17,958.88, the highest close since February 27. The broader TOPIX index also ended at its highest since February 27, rising 0.69 percent to 1,767.88.
Trade volume grew with 2.5 billion shares changing hands. That comapred with a daily average volume of 2.1 billion shares in April. Advancers beat decliners by a ratio of nearly two to one. Steel, shipping and trading companies were sought after for their attractive valuations and earnings prospects.
JFE Holdings Inc gained 2.2 percent to 7,560 yen. The stock trades at a forecast PE of 14, compared with the Nikkei's 20, according to Reuters data. Shipping company Kawasaki Kisen Kaisha Ltd jumped 4.1 percent to 1,535 yen. Itochu Corp leapt 3.9 percent to 1,381 yen after Morgan Stanley lifted its target price to 1,465 yen from 1,234 yen, citing healthy earnings and cheap valuations.
All shares are trading at a 10 to 12 of PE. Among exporters, Toyota Motor rose 2.2 percent to 7,460 yen and Advantest Corp gained 1.5 percent to 5,280 yen. Meanwhile, Takeda Pharmaceutical Co Ltd, Japan's biggest drug maker, said after the market closed that it would drop development of a medicine that combined its diabetes drug Actos with investigational drug TAK-536.
Corporate earnings forecast for the year to March 2008 turned out to be better than expected, giving some confidence to investors, said Kazuya Nakamura, deputy general manager at Norinchukin Zenkyoren Asset Management.
Of 1,245 non-financial companies listed on the first section of the Tokyo Stock Exchange, 1,228 firms announced their earnings results and outlooks and average growth for recurring profit was 6 percent, according to Shinko Research Institute. "Investors were worried about conservative outlooks and that had kept the market in check," he said. "If profit is growing the market naturally expands accordingly.