A central bank meeting and the start of Japan's latest earnings season will be among the key trading cues for Tokyo investors next week amid speculation policymakers could pull the trigger on more stimulus. The Bank of Japan meets Friday for a policy-setting meeting that could also see it cut its growth and inflation outlook for the world's number three economy after a string of weak data.
If the BoJ expands its 80 trillion yen ($665 billion) annual asset-buying scheme - similar to the Federal Reserve's quantitative easing - it would likely weaken the yen further, which is a plus for Japanese exporters' profitability and tends to give their shares a boost. The bank last expanded the programme in October last year.
"We now put a 50 percent probability for the bank to decide on additional easing," Hiromichi Shirakawa, chief economist at Credit Suisse, said in a research note.
"Softening of industrial production, remaining sluggish wage growth, peaking of expected inflation rates across the board and gradual firming of the yen all seem to support additional easing action."
Japan is slated to release fresh inflation and unemployment figures Friday, and monthly industrial production data on Thursday, which economists see as a bellwether for a BoJ decision on whether to add extra monetary stimulus.
Also in focus are earnings from a string of firms including Nintendo, Sony, Japan Airlines and Hitachi, with investors keeping tabs on a two-day Federal Reserve meeting from Tuesday.
On Friday, Tokyo stocks extended a global equities rally, closing at their highest level in almost two months after the head of the European Central Bank Mario Draghi hinted at further economic stimulus for the eurozone. "The Draghi jawbone sent Asian markets flying today," IG Ltd. analyst Angus Nicholson said in a note.
"Draghi's speech was as dovish as it could be without actually further easing monetary policy, with a pledge to 're-examine' the 'degree of monetary accommodation' at the December meeting," he said.
The ECB chief's comment ignited talk the bank will ramp up its already vast bond-buying scheme - essentially printing more cash - in a bid to fan chronically weak inflation and kick-start torpid growth.
In Tokyo, the benchmark Nikkei 225 index advanced 2.11 percent, or 389.43 points, to 18,825.30, its best finish since late August. The index rose 2.92 percent over the week.
The broader Topix index of all first-section shares was up 1.95 percent, or 29.62 points, to 1,547.84. It tacked on 2.79 percent during the week.
Toyota shares gained 1.26 percent to end at 7,522 yen, Honda rose 4.01 percent to 4,063 yen, telecom firm SoftBank advanced 2.21 percent to 6,590 yen, while market heavyweight Fast Retailing, operator of the Uniqlo clothing chain, was up 1.50 percent at 43,870 yen.
Japan Tobacco, whose shares have been hit in recent weeks after announcing a $5.0 billion acquisition in the United States, jumped 4.56 percent to end at 4,283 yen.