The Nikkei average rallied 2.2 percent on Friday, regaining the key 9,000-mark, as investors bet Japan's main opposition party will win next month's election and put more pressure on the central bank to stimulate the ailing economy. The call by the Liberal Democratic Party's leader Shinzo Abe, a former prime minister, for the Bank of Japan to push interest rates to zero or below zero to spur lending has whipsawed the yen to a 6-1/2-month low against the dollar, sending shares in exporters sharply higher.
Exporters had been battered by worries about US "fiscal cliff", the euro zone's debt crisis and slowing demand in China, and several, including Nissan Motor Co, Canon Inc, Nikon Corp and Mazda Motor Co, surged more than 5 percent. The Nikkei climbed 194.44 points to a two-week closing high of 9,024.16, and logged its biggest one-day percentage rise in two months. The index has risen 3 percent this week, helped by a 4.2 percent jump in the past two days.
"Japanese shares have been underperforming their global peers, so investors may take this domestic trading cue as a chance to chase the market higher," said Kenji Shiomura, an analyst at Daiwa Securities. The benchmark Nikkei is up 6.7 percent this year, trailing a 7.6 percent rise in the US S&P 500 and an 8.6 percent gain in the pan-European STOXX Europe 600.
In terms of valuation, Japanese equities carry a 12-month price-to-book ratio of 0.9, much cheaper than S&P 500's 1.9 and STOXX Europe 600's 1.4, data from Thomson Reuters Datastream showed. The broader Topix climbed 1.9 percent to 751.34, with trading volume hitting an eight-month high. Nomura Securities highlighted Nikon, Sumitomo Heavy Industries Ltd, Daikin Industries Ltd, electronic parts maker Nidec Corp, Shin-Etsu Chemical, Suzuki Motor Corp and auto parts maker Denso Corp as among the firms that benefit the most from a softer yen. Nomura advanced 5 percent, while Mitsubishi Estate and Mitsui Fudosan added 1.6 and 2.3 percent, respectively.
Investors demand for Nikkei call options, which essentially bet on the index to go higher, were brisk, outnumbering the demand for put options. According to Reuters data, Friday's most-traded Nikkei index options were a call with a strike price of 9,500, a 5.3 percent upside from Friday's close, and a December maturity.
The next most-traded was a December call at 9,250, followed by a December put at 8,500 and another call at 9,750. Among the handful of losers on the Nikkei, brewer Kirin Holdings Co Ltd dropped 2.2 percent after a consortium led by Overseas Union Enterprise Ltd said Kirin will offer to buy Fraser and Neave Ltd's food and beverage business for $2.2 billion if OUE's bid for F&N is successful.