Japanese shares could rally if US employment figures beat market expectations and if there is evidence that the Bank of Japan will take fresh steps to shore up the fragile recovery. The yen's recent fall against the dollar may also boost earning prices, as a weaker yen helps Japanese exporters by making their goods more competitive.
Investors were also waiting for a US non-farm pay-rolls report for February later Friday for an indication of the health of the world's biggest economy. In the week to March 5, the Tokyo Stock Exchange's benchmark Nikkei-225 index added 242.93 points or 2.40 percent to 10,368.96. The broader Topix index of all first-section shares gained 21.73 points or 2.44 percent to 910.81. "Stocks have some pent-up energy that will translate into a rally on mounting speculation that the Japanese central bank is considering taking more monetary easing policies," said Okasan securities strategist Hirokazu Fujiki.
The Nikkei business daily Friday reported that the BoJ will likely consider more monetary easing to fight stubborn deflation and help the economy's recovery from its worst post-war recession.
The bank's policy board is expected to discuss new steps to tackle deflation at a two-day meeting from March 16, the report said without citing sources. The BoJ is highly likely to take fresh steps to expand the duration of loans to six months or one year under the bank's lending facility started in December, Mizuho Securities strategist Yasunari Ueno told Dow Jones Newswires. While some are sceptical about the measure's impact, Nikko Cordial Securities equity manager Hiroichi Nishi said the additional steps "will have a healing effect on the economy as a whole".
Meanwhile investors had their eyes turned to a US employment report that is likely to show the labour market shed at least 50,000 jobs and unemployment rose to 9.8 percent in February from 9.7 percent in January. Many analysts attribute the rise to last month's heavy snowstorms, but "any small positive surprise will boost shares", said Fujiki.