Tokyo's Nikkei share average closed up 0.58 percent on Monday, putting last week's revaluation of the Chinese yuan behind it, as earnings optimism bolstered such stocks as Fanuc Ltd Higher oil prices lifted resource-related shares including Nippon Mining Holdings Inc, and Takeda Pharmaceutical Co gained on US approval of a new drug.
The Nikkei rose 67.60 points to 11,762.65 and the broader TOPIX index gained 0.3 percent to 1,190.27.
The yen rose sharply late on Thursday in an immediate reaction to China's 2.1 percent revaluation of the yuan, and the Nikkei fell 0.78 percent on Friday as investors sold exporters' shares.
A stronger yen hurts Japanese exporters as it makes their products less price-competitive abroad and eats into earnings when they repatriate dollar-denominated revenues.
But the Japanese currency fell for a second straight session on Monday, easing concern about the impact on exporters.
"The immediate impact from the yuan's revaluation is behind us and the mood concerning earnings here is somewhat optimistic, supporting the overall market," said Masatoshi Sato, senior strategist at Mizuho Investors Securities.
Precision tool maker Hitachi Tool Engineering Ltd soared 11.4 percent to 1,398 yen after announcing strong quarterly results. The news also fuelled hopes for the sector's earnings, and industrial robot maker Fanuc reversed Friday's fall to close 2.1 percent higher at 7,860 yen, its highest close since September 2003. Energy shares also rose on higher oil prices, which are generally considered a negative factor for markets as they weigh on consumption and profits but are a boon for energy firms.
US crude oil futures rose 2.7 percent to above $58 a barrel on Friday and held those gains on Monday as a storm impeded oil supplies in the Gulf of Mexico.
Nippon Mining, which includes oil refiner Japan Energy, gained 3.3 percent to 650 yen.
Oil producer and refiner AOC Holdings Inc climbed 6 percent to 1,697 yen, helped by the gains in crude and news that AOC's oil-producing unit Arabian Oil plans to begin crude production at two locations in Egypt in the second half of 2007.
Yoshinori Nagano, chief strategist at Daiwa Asset Management, said he has also been encouraged by recent gains in shares of shipping companies and steel makers.
"Despite disappointing news flow on product prices recently, the steel sector has been showing a solid footing. Together with gains in shipping stocks recently, those cyclical plays could suggest higher chances of a sustainable expansion in the global economy," he said.
Kawasaki Kisen Kaisha Co, Japan's No3 shipping firm, rose 3 percent to 693 yen, a two-month closing high.
Investors also reacted to corporate announcements. Takeda, Japan's biggest drug maker, rose 1.1 percent to 5,600 yen after winning US approval on Friday for its prescription sleeping pill Rozerem, the first new in-house medicine in six years.
Not all corporate news was good, however, and online broker Matsui Securities Co dropped 3.8 percent to 1,054 yen after it posted a 15 percent fall in quarterly net profit late on Friday.
Auto maker Nissan Motor Co is among firms to report quarterly earnings on Tuesday, and most other blue chips announce results later in the week.
Apparel maker World Co may come under the spotlight when the market opens on Tuesday.
World said after the market closed on Monday that a group led by the head of the Osaka-based company will offer to buy at least 66.67 percent of the company in a management buyout deal, Japan's biggest ever.
Investors are also expected to focus on former state-owned Central Japan Railway Co (JR Tokai) after the Japanese government late on Monday fixed the price for its planned sales at a 2.1 percent discount to Monday's close. The offer is the biggest domestic share offering in more than four years.
Trade was subdued during the regular session, with 1.33 billion shares changing hands, below last year's daily average of 1.45 billion. Gainers outnumbered decliners 1,013 to 462.