Tokyo shares jumped more than two percent this week in the lead up to Japanese national elections on Sunday, as opinion polls point to a sizeable victory for the opposition Liberal Democratic Party (LDP). For the week to December 14, the benchmark Nikkei 225 index at the Tokyo Stock Exchange rose 2.21 percent, or 210.17 points, to 9,737.56.
The broader Topix index of all first-section shares added 1.37 percent, or 10.80 points, to 801.04. Japan's premier exchange had been relatively quiet until midweek when the Nikkei logged consecutive eight-month highs as the expected LDP victory upped speculation of more central bank easing.
That weighed on the yen, which tumbled to multi-month lows against the dollar and euro, propping up exporters' shares. Japanese manufacturers benefit from a weaker currency by making their products more competitive overseas.
Central bank easing speculation has been stoked by comments from LDP leader Shinzo Abe, the frontrunner to become the country's next prime minister, who has vowed to pressure the Bank of Japan for more aggressive monetary easing measures to counter slowing in the world's third-largest economy.
A US Federal Reserve policy meeting ended with the central bank saying it would replace its "Operation Twist" bond swapping programme with $45 billion a month in straight bond buys, on an open-ended basis.
That came on top of the $40 billion a month purchasing announced earlier. The Fed move further stoked speculation over more easing by the European Central Bank and Japanese policymakers.
"Expectations for more central bank policy easing have certainly not abated," Kenichi Hirano, market analyst at Tachibana Securities, told Dow Jones Newswires.
Earlier in the week, markets cheered data that showed German investor sentiment at a seven-month high, raising hopes Europe's top economy will dodge recession, while debt-hit Spain saw its borrowing costs fall sharply in a sale of short-term treasury bills, another salve for eurozone fears. Investors were also heartened by figures that showed a pickup in China's economy, although a deal on the US fiscal cliff impasse remained elusive.
Dampening sentiment Friday, the Japanese central bank released its key Tankan survey that showed confidence among large Japanese manufacturers at its lowest level in nearly three years.