Japan's Nikkei average rallied for a third straight session on Thursday, lifted to a fresh eight-month closing high by major exporters that surged on the back of a weaker yen while recent data boosted confidence about a US economic recovery. The yen plumbed an 11-month low of 84.187 to the dollar, offering relief for Japanese exporters that have struggled with both a strong currency and supply chain disruptions after last year's natural disasters in Japan and Thailand.
Among exporters, Canon Inc jumped 3.7 percent and was the Topix core 30 list's top percentage gainer, followed by automakers Honda Motor Co, up 3.5 percent, and Toyota Motor Corp, which gained 2.9 percent. The benchmark Nikkei gained 0.7 percent to 10,123.28 and the broader Topix advanced 0.8 percent to 863.61. Strategists said foreign investors stepped in to buy and adjusted their previously underweight positions in Japanese equities, absorbing profit-taking by domestic players ahead of their fiscal year-end on March 31.
"Domestic institutional investors are not going to wait until the very last minute to take profits before they close their books, but the huge amount of buying by foreign investors is taking up the slack," said Investrust Chief Executive Hiroyuki Fukunaga.
Foreign investors continued their net buying of Japanese shares into an 11th straight week for the week through March 10, although volume shrank to 87 billion yen ($1.04 billion) from 164.4 billion yen the previous week, data from Japan's Ministry of Finance showed.
The Nikkei was deep in "overbought" territory, with its 14-day relative strength index at 78.4, and was outside the upper band of the Bollinger Bands, indicating a potential pullback. "You could look at certain technical indicators and say that the market is overheated, but now is not really the time to be looking at such charts ... The market is moving in tandem with the weaker yen, and the stronger dollar is backed up by improvement in the US economy," Fukunaga said. Nomura wrote in a note to clients on Thursday that the Nikkei was likely to aim in the near term for the July 8 high of 10,207.91 or perhaps higher to the closely watched 10,500 mark.
If it manages to top those levels, Nomura said the next target would be the February 17, 2001, high near 10,891. The Nikkei has surged 18.5 percent so far this year after a 17 percent battering in 2011 as equities markets worldwide got a lift from a run of strong US economic data and accommodative monetary policies across the globe.