Japan's Nikkei average advanced 1 percent on Wednesday as receding concerns about a strong yen spurred short-covering, but further gains may be hard-won amid ongoing concerns about nuclear operator Tokyo Electric's compensation scheme. A weaker yen had pulled the benchmark Nikkei index into positive territory in late trade the previous day, and foreign investors piled back into the market on Wednesday placing basket orders for exporters and domestic-demand shares for some 17 billion yen ($210 million), traders said.
Utilities and banking stocks also rose as investors covered short positions after those sectors had tumbled in the past few sessions on worries about how much they will have to contribute to help Tokyo Electric Power (Tepco) compensate those affected by the crisis at its tsunami-hit nuclear plant.
"We're seeing short-covering helped by moves in the euro/yen rate, but my midterm view hasn't changed - while I don't think there's a huge downside risk, I don't see more 1 percent jumps any time soon either," said Yuuki Sakurai, head of Fukoku Capital Management.
The Nikkei average closed up 1 percent at 9,662.08 on Wednesday, while the broader Topix gained 1.1 percent to 837.96. At one point the Nikkei topped a closely watched technical level, its 25-day moving average at 9,686.72, but slipped back below it, leaving that level as its immediate resistance.
Analysts said investors would continue to see 9,500 as a strong support line in the next few weeks, with buying on dips expected at that level by long-term investors such as pension funds. The euro found support against the yen after reports that Japan's Toshiba Corp could be close to buying Swiss-based Landis+Gyr.
Separately, Takeda Pharmaceutical will reach an agreement on Wednesday with Swiss-based Nycomed to acquire the company for about 1 trillion yen ($12 billion), the Nikkei financial daily reported. The euro was slightly lower at the end of the session and changed hands around 115.81 yen. Mizuho Financial Group gained 3.2 percent to 131 yen, outperforming the banking subindex's 2.3 percent rise, after sources said Japan's second-biggest lender by assets may merge its corporate and retail banking units to revamp operations following the collapse in March of its cash machine network.
A pullback in risk assets amid volatile commodities prices and worries about the expected end of the US Federal Reserve's stimulus programme had pressured the Nikkei since late last week.
The Nikkei has tumbled almost 7.4 percent since the March 11 earthquake, while Asian stocks outside Japan have gained about 6 percent. Adding to evidence the American economy is hitting a soft patch, both US housing starts and industrial production slowed.
Figures from Hewlett-Packard and Wal-Mart underlined weakness in the US economy with Wal-Mart saying same-store sales have fallen for two straight years while HP cut its forecast due to problems stemming from Japan's earthquake and soft PC sales. Chipmaker Renesas Electronics jumped 5.8 percent to 744 yen after the Nikkei business daily reported that the company plans to resume operations at its Naka plant, which was damaged in the earthquake.
Output at the plant, which makes microcontrollers and system chips, will return to 10 percent of pre-quake levels in June rising to 50 percent by August and 100 percent by October, the Nikkei said. Budget carrier Skymark Airlines tumbled 15.1 percent to 1,047 yen after saying on Tuesday it will issue new shares to raise up to 21.3 billion yen ($261 million) to finance the purchase of Airbus A380 planes and other capital spending. The move will increase the number of its shares outstanding by 28 percent. Volume was thin, with 1.83 billion shares changing hands on the main board, falling below its last week's daily average of 2.1 billion shares for the third straight day. Advancing shares outpaced decliners by 1,338 to 224.