The Nikkei share average closed at a fresh four-and-a-half-year high above the 12,500-mark on Friday on growing expectations the central bank will ease monetary policy aggressively under its new leadership.
The Nikkei advanced 1.5 per cent to 12,560.95, its highest level since early September 2008. For the week, the index climbed 2.3 per cent, which is its fourth straight weekly gain.
Sony Corp soared 11 per cent after Daiwa Securities raised its rating to 'buy' from 'neutral,' saying that the company could turn profitable in fiscal 2014 due to strong smartphone sales. The stock closed at a 11-month high of 1,668 yen and was the main board's most traded stock by turnover.
Japan's business daily Nikkei reported that the Xperia Z, a new smartphone model Sony launched last month, was the top-selling model in Japan for four straight weeks.
Japan's parliament approved Haruhiko Kuroda as the Bank of Japan's next governor while Kikuo Iwata and Hiroshi Nakaso will serve as the bank's deputy governors.
"Approval by the upper house will boost hopes for more decisive and swift policy easing," said Yoshiyuki Kondo, an analyst at Daiwa Securities.
Exporters, whose earnings will likely be boosted by a weaker yen on hopes for bolder policy easing, were popular. Companies such as warehouse owners and railroad operators with large land holdings outperformed, helped by expectations that reflationary policy will raise their asset values.
The index is likely to top the key 13,000-mark by the end of March, said Mitsushige Akino, executive director and chief fund manager at Ichiyoshi Asset Management.
"Investors grow increasingly confident about the outlook for the US and Japanese economies," he said, adding that portfolio rebalancing by some investors contributed to gains.
Also lifting the appetite for stocks was Japan's expected participation in the negotiation of the Trans-Pacific Partnership, a proposed free trade deal between the United States and 10 countries.
Media reports said that prime minister Shinzo Abe would announce details later Friday.
Shipper shares benefitted the most on hopes of increased trade, making the marine transport sector the best sectoral performer. Mitsui OSK Lines jumped 6 per cent and Kawasaki Kisen Kaisha added 4.1 per cent.
Toyota Motor Corp gained 1.4 per cent, Honda Motor Co added 2.6 per cent and Nikon Corp climbed 2.5 per cent.
Exporters have led the Nikkei's gains this year on Abe's push to ease monetary policy and expand fiscal spending to pull the country out of persistent deflation.
The Nikkei has outperformed global peers, rising 21 per cent this year compared with the Dow Jones Industrial Average's 11 per cent and the FTSEurofirst 300 index's 6.5 per cent.
"Investors have bought overall exporters for the past few months. But they will be selective, and companies with competitive advantages in the overseas market will likely rise further from now such as automakers," said Masatoshi Sato, senior strategist at Mizuho Securities.
Warehouse stocks rose on continuing expectations for the government's reflationary policy, while Abe's anticipated decision to participate in the TPP talks sparked hopes for higher storage costs to handle imported products.
Inui Warehouse Co increased 2.3 per cent, Shibusawa Warehouse Co gained 2.6 per cent.
"Reflation stocks such as these warehouses and real estate will probably continue to rise before the release of land prices by the government next week," Mr Kondo said.
East Japan Railway Co added 2.6 per cent, while Odakyu Electric Railway Co gained 3 per cent.
"We see several signs of a little bit of overheating in the Japanese market, but strength in the overseas market serves as a tailwind to Japanese equities," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities.
The Nikkei traded 7.5 per cent above its 25-day moving average. A level above 5 per cent suggests the market is overbought.
The broader TOPIX gained 1.3 per cent to 1051.65 in relatively active trade, with 3.88 billion shares changing hands. Last week's average daily volume was 3.44 billion shares.
Mitsushige Akino, executive director and chief fund manager at Ichiyoshi Asset Management, said the major reason behind Friday's rally was the rebalancing of the FTSE indices.
Copyright @ Thomson Reuters 2013