The Nikkei share average climbed 1.5 percent on Thursday from a two-month closing low hit the previous day, boosted by short-covering in battered shares such as Komatsu as well as the launch of two investment trusts this week. Copier and printer maker Ricoh jumped 4.1 percent on news that it will slash almost 10 percent of its workforce as it looks to boost its sagging profits and fend off competition from the likes of Canon Inc and Xerox.
Financial markets also saw a bit of bounce in risk appetite on Thursday, with climbs in gold and oil prices helping lift sentiment for equities. But further gains for stocks may be elusive amid worries that the planned termination of the US Federal Reserve's quantitative easing and recent tightening by many emerging economies will lead to a slowdown in the global economy.
"Whether this rally lasts or not depends on external factors such the US economic recovery but excessive concerns about the possibility of more (immediate) declines have receded," said Kenichi Hirano, a strategist at Tachibana Securities. The Nikkei closed up 139.17 points at 9,562.05, after marking its lowest finish since March 18 the day before.
The broader Topix added 1.1 percent to 827.08. Some market players think the Nikkei will be supported above 9,405, an intraday low hit on April 19, but others say it could fall below that, possibly to around 9,000 in the coming months.
"Investors are worried that the global equities' bull run on the back of the Fed's QE2 is clearly running out of steam and that money flows could change," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. Japan's economy is also expected to continue to struggle in the aftermath of the March 11 earthquake, with many market players voicing concerns that the government's supplementary budget for rebuilding could be delayed until late this year due to a political stalemate.
Among investment trusts or "toushin" launches this week, Nomura's toushin, launched on Wednesday, attracted 31.9 billion yen ($389 million), a decent sum for a fund focused on domestic stocks and some of that money is likely flowing into the market, players said. Rival Daiwa Asset Management also launched a fund on Thursday, garnering 27.2 billion yen. Gold edged up on Thursday to near its strongest level in three weeks with the euro under pressure from concerns over Europe's sovereign debt problems, while Brent crude futures rose above $115 a barrel on Thursday, supported by a weaker dollar.
Oil exploration firm Inpex gained 3.1 percent to 565,000 yen and refiner JX Holdings ended up 3.2 percent at 514 yen. Players such as commodity trade advisors (CTAs) and domestic speculators bought back futures, traders said. There was also short-covering in recent underperformers such as construction machinery maker Komatsu, which rose 1.0 percent to 2,402 yen after hitting an intraday high of 2,421 yen.
Canon Inc jumped 5.8 percent to 3,850 yen after the camera and copier maker said it would buy back up to 50 billion yen ($610 million) of its own shares to prepare for possible share swaps and other strategic moves. Volume was thin, with only 1.62 billion shares changing hands on the Tokyo Stock Exchange's main board. Advancing shares outnumbered declining shares by 1,200 to 322.