Japan's Nikkei average rose 0.5 percent on Thursday and edged back towards a five-month high hit earlier this week, supported by demand from overseas investors and the yen's recent dip against the dollar. Tokyo shares regained some of the ground lost the previous day, when worries over tensions on the Korean peninsula prompted investors to book profits from a recent rally.
The Nikkei edged higher in moderate trade ahead of a US holiday, helped by gains in blue chip exporters such as Honda Motor Co, Toyota Motor Co and Sony Corp. The Nikkei, which has rallied 9.5 percent this month, helped by overseas investor demand for Japanese shares including short-covering and year-end portfolio tweaking, may rise further towards the end of the year despite some signs of overheating, analysts said.
The Nikkei climbed 12.9 percent in December 2009, and even rose 4.1 percent in December 2008 - just a few months after global financial markets were roiled by the bankruptcy of Lehman Brothers. This may be due to factors such as hedge funds building new positions after their book closings in November, and domestic pension funds buying in anticipation of their investment plans for the next fiscal year, Yamada said.
The Nikkei climbed 49.65 points to 10,079.76. The benchmark index hit a five-month intraday high of 10,157.97 on Monday. The broader Topix index edged up 0.4 percent to 869.81. There was talk that hedge funds and European investors bought blue chips and financials on Thursday morning, said Masayuki Otani, chief market analyst at Securities Japan, Inc.
But talk of selling interest among Japanese institutional investors helped limit the Nikkei's gains, Otani said. Trading volume on the Tokyo exchange's first section totalled 1.9 billion shares, a tad lower than the average of the past five sessions of nearly 2.0 billion shares.
Some market players worry that the Nikkei's recent rally looks overstretched. "The Nikkei is still very solid and its sentiment remains bullish, but Japanese shares could soon enter a phase of correction as I think the pitch of the rise has been a bit too rapid," said Masaru Hamasaki, a senior strategist at Toyota Asset Management.
"From here, we want to look at the US market. The market wants to see whether US consumption would pick up during the year-end holiday season," Hamasaki said. Trading house Sojitz Corp rose 0.6 percent to 169 yen in heavy trade, adding to a 9.1 percent jump the previous day after the firm said it had formed a tie-up with Australian mining company Lynas Corp on the supply of rare earth metals.
Trading volume in Sojitz was nearly three times the five-day average. Major electric wire and cable manufacturer SWCC Showa Holdings jumped 21.9 percent to 89 yen and Sumitomo Electric Industries Ltd, a major producer of electric wires and cables, climbed 2.0 percent to 1,102 yen after the Nikkei business daily said the companies would start mass production of superconducting wire next year for use in smart power grids and car motors.