Tokyo stocks marked their biggest daily rise in three weeks to close above 10,000 on Wednesday, boosted by a rally in tech shares after strong earnings from Apple, with more gains in sight as Japan heads into its earnings season.
Many players say the Nikkei could well advance further, noting that most US corporate earnings have beaten market estimates, as well as a favourable outlook on technical charts and attractive valuations that have encouraged institutional players to build long positions.
"We're likely to renew the post-quake high hit on July 8 going into the earnings season and the overall mood is rather bullish, but low volumes point to some nervousness over debt problems in the US and the euro zone," said Mitsushige Akino, general manager at Ichiyoshi Investment Management.
US debt worries were soothed somewhat after US President Barack Obama seized on a plan by a bipartisan group of senators that could revive stalled US talks and the prospect of a long-term deficit reduction deal to avert a default.
The benchmark Nikkei average closed up 1.2 percent at 10,005.90 on Wednesday, jumping the most since June 29, while the broader Topix gained 0.8 percent to 860.66.
On July 8 the Nikkei rose to an intraday high of 10,207.91, not far from 10,254.43, a level last seen on March 11 when an earthquake and tsunami devastated north-east Japan and triggered a nuclear crisis.
Most investors are long in the market, suggesting sentiment towards Japanese stocks is overwhelmingly positive.
Among companies benefiting from the Apple euphoria, Toshiba Corp , a maker of NAND flash memories, rose 2.7 percent to 413 yen and Foster Electric , which makes headphones for smartphones, jumped to a one-week high in heavy volume, gaining 1.7 percent to 1,520 yen.
Volumes remained depressed with 1.53 billion shares changing hands on the main board, below last week's lukewarm average daily volume of around 1.7 billion shares.
Shares of Japanese banks, recently heavily underperforming on worries over the eurozone and the US debt, also climbed, shrugging off weak results from American banking giants.
Goldman Sachs' anemic second-quarter results on Tuesday rattled investors, while Bank of America Corp reported a record quarterly loss of $8.8 billion as persistent mortgage problems and low interest rates squeezed revenue.
Mitsubishi UFJ Financial Group, Japan's biggest bank by assets, gained 1.6 percent to 389 yen and Sumitomo Mitsui Financial Group added 1.1 percent to 2,430 yen.