Tokyo's Nikkei average posted its biggest percentage gain this year to its highest close in a month on Monday as a rebound on Wall Street and increased confidence in Japan's economic recovery encouraged buying.
The Nikkei ended the day up 311.87 points at 11,439.92, its highest close since May 6. The 2.8 percent gain was its biggest in a single day since December 15, 2003, when it jumped 3.16 percent.
The broader TOPIX index was up 2.37 percent at 1,151.67, also the highest close since May 6.
Buyers flocked to shares in domestic-oriented firms such as banks, brokers and insurers on expectations that Japanese data this week, such as revised economic growth figures and machinery orders, would confirm a steady recovery, analysts said.
The market's focus returned to solid fundamentals at home after US stocks got a boost from strong US jobs figures for May, a sign that Wall Street had factored in an interest rate rise by the Federal Reserve later this month, they said.
"The big event is over," said Koichiro Suzuki, manager at Sompo Japan Asset Management, referring to the US jobs data.
"The fact that Wall Street rose despite the strong jobs numbers underlined views that the US market has factored in the anticipated rate rise. That gave a cue for global investors to buy not only Japan but also other Asian markets," he said.
The stock market's rally was in sharp contrast to a slide in Japanese bond prices.
The yield on the benchmark 10-year Japanese government bond rose to 1.675 percent on Monday, matching its highest level since the Bank of Japan adopted its easy monetary policy in March 2001.
"In contrast with falling bond prices, investor confidence in equities looks to be increasing," Suzuki said.
Trade volume increased with 1.262 billion shares changing hands, up from last week's daily average of 1.155 billion.
Gainers outnumbered decliners 1,324 to 169.
UFJ Holdings Inc led banks higher, with the sector sub-index rising 4.29 percent.
UFJ climbed 6.98 percent to 552,000 yen after local media reported at the weekend that Japan's fourth-biggest bank would sell consumer finance affiliate Aplus Co and seek help from the state corporate rescue body to revive the fortunes of several of UFJ's large borrowers. Shares of Aplus gained 4.67 percent to 224 yen.
"I can see ripple effects from rising bank shares," said Yusuke Sakai, manager of equities at Mizuho Securities.
UFJ's bad loan disposal is the last thorny issue among major banks, so any progress in that means a step towards a normalised relationship between banks and their borrowers such as real estate firms and retailers, Sakai said.
Bigger rival Mitsubishi Tokyo Financial Group jumped 5.84 percent to 943,000 yen. Ito-Yokado Co, Asia's second-biggest retail group, rose 4.85 percent to 4,540 yen.
Several high-tech issues also gained after the sector slid late last week amid caution before chip giant Intel Corp unveiled a positive outlook for the current quarter and helped lift their US peers.
Tokyo Electron Ltd, the world's second-biggest maker of chip manufacturing equipment, gained 5.03 percent to 6,270 yen and chips-to-computers conglomerate Fujitsu Ltd rose 3.35 percent at 772 yen.
Shoji Hirakawa, chief strategist at UBS Securities, said April machinery orders data due on Thursday could beat market expectations, a factor behind his prediction that Tokyo's rising trend would continue.
"Regarding the April machinery order numbers, we are hopeful of a market surprise. Given that corporate cash flow remains in an expansionary phase, we believe machinery orders are still growing," Hirakawa said in a report dated Friday.
Other factors he cited to back up his recommendation to buy Japanese shares on price dips were attractive valuations and ongoing restructuring in the corporate sector.
But some analysts said Monday's rally was overdone and saw limited upside room in the near future.
"Selling pressure should mount if the Nikkei nears its April level of 11,600 and above when turnover was much higher," said Masaru Ueda, head of the investment strategy division at Marusan Securities.
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