The Nikkei average rose to a post-quake high on Wednesday, gaining for a seventh session in its longest winning streak in two years, helped by continued buying by Asian and European investors and with worries fading about slower global growth.
Its rise accelerated after it broke above resistance at its May 2 peak of 10,017, setting it up to test a chart gap that opened immediately after the March 11 earthquake - its close of 10,254 on the Friday the disaster struck and its opening the following Monday of 10,050.
The Nikkei rose 1.1 percent to 10,082.48, its highest since the Monday after the quake and tsunami devastated north-east Japan, with a break of resistance at its May 2 peak of 10,017, triggering a rush of buying in futures. The broader Topix index advanced 1 percent to 873.51, its highest in three months.
The Nikkei's rally came despite simmering worries about European debt, underlined by a downgrade of Portugal's debt rating to junk status, and talk of problems at Chinese banks. Japanese shares fared much better than their regional counterparts, with a 0.2 percent rise in Asia-Pacific shares and a 0.5 percent fall in Shanghai shares.
Tokyo shares have been slowly catching up with their global peers, outperforming many markets in recent months on the back of hopes for a recovery in corporate earnings, supported by buying by Asian and European investors. The Nikkei pared its losses since the disaster to 3.4 percent, from a nadir of over 17 percent.
In dollar terms it is down 1.0 percent. While that is still below gains of a few percentage points in many developed markets, it is now beating Shanghai shares, which have lost 3.6 percent in dollar terms in the same period. "European investors are said to be buying large-cap shares at the core of the Topix, which is leading to the view that some foreign investors are re-evaluating Japanese shares," said Masato Futoi, manager of cash trading at Tokai Tokyo Securities.
In one possible example of that, Nintendo rose 3.1 percent in heavy trading volume, recovering further from a 5 1/2-year low hit last month. Other exporters also made gains, with both the transport equipment makers subindex and electronic machinery subindex rising 1.3 percent.
Eiji Kinouchi, chief technical analyst at Daiwa Securities Capital Markets, thinks exporters have more room to gain in the coming months, assuming the dollar strengthens against the yen after the US introduces a tax holiday for repatriation of funds by US companies. "I would say each 1 yen rise in the dollar could boost the Nikkei by 200 points," Kinouchi said.
The market could be unstable in the near term, because US initial jobless claim figures tend to be weak at the beginning of a quarter but the market could extend its rally after that, Kinouchi said. Trading volume increased to 1.86 billion shares, compared to the average for the past six days of 1.80 shares. Advancers outnumbered decliners by 1,085 to 401.