 "Nikkei advances as financials storm higher")
Investors shrugged off reports that North Korea had likely launched a nuclear test during Tokyo's midday break, although stocks pared gains slightly through the afternoon as the yen dropped back below 94 to the dollar from a 33-month high of 94.42.
The benchmark rose 1.9% to 11,369.12, within reach of a 33-month high of 11,498.42 struck last Wednesday. The benchmark has risen 31% since mid-November.
"The upward trend in Japanese stocks provided a tailwind to the securities sector on hopes that the rallies would bolster their commission income," said Yuya Tsuchida, a strategist at Toyo Securities.
The securities sector was the best-performing sector on the main board, propelled up 4.7% as Nomura Holdings soared 5.5% in heavy trade and Daiwa Securities Group jumped 4%.
The banking sector was next in line, rising 2.8% thanks to Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc gaining 4.8% and 3.5%, respectively, in heavy trade.
Japan's aggressive expansionary monetary policies have sharply weakened the yen in recent months, prompting concerns in Europe and the United States.
With finance ministers from the Group of 20 nations scheduled to meet this week, investors betting on a weaker yen were relieved after US Treasury Undersecretary Lael Brainard said Washington supports Japanese efforts to end deflation and reinvigorate growth.
"Her comments gave confidence to the market. It was surprising, and was taken as the Obama administration giving a green light to 'Abenomics'," said Takuya Takahashi, a market analyst at Daiwa Securities, adding that he expects the Nikkei to remain strong this week.
However, Brainard also said that it was important to abide by the G7's commitment to floating exchange rates that reflect market forces.
Japanese ministers and government officials have repeatedly vocalised their desired levels for the exchange rate. Japan's economy minister, Akira Amari, was quoted by media as saying on Saturday that the government will increase economic efforts to help the Nikkei reach 13,000 by the end of March, 14% above its current level.
Analysts said that the yen looks set to stay under pressure on expectations that Prime Minister Shinzo Abe will endorse a far more dovish Bank of Japan regime when the current leadership's term ends next month.
The BOJ, which last month adopted a 2% inflation target as a sign of its commitment to fight deflation and announced a shift to "open-ended" asset buying, is expected to refrain from taking fresh easing steps at its two-day meeting beginning Wednesday.
Isuzu, Nissan underperform
While exporters across the board have seen sharp gains over the past three months as the yen has softened, prompting expectations of increased overseas revenues once repatriated, a mixed earnings season has left investors more discriminating.
"There is now a clearer difference between companies that were just bought on speculation of higher earnings and those that are actually showing signs of promise," said Masato Futoi, head of cash equity trading at Tokai Tokyo Securities, adding that there is still room for the latter to be bought.
Toyota Motor Corp, which attributed its profit forecast hike to the weak yen last week, gained as much as 3.2% to top the 5,000 yen level for the first time since August 2008, before paring gains to end 0.5% up. That left it 60% higher than in mid-November, almost double the Nikkei's gain in the same period.
Meanwhile, shares of Canon Inc, which derives 80% of its sales abroad, advanced 2.2%.
On the other hand, Nissan Motor Co lost 3.8% after it bucked the optimistic trend among other Japanese carmakers by leaving its annual profit forecast unchanged as sluggish sales weighed on its bottom line.
Likewise, Isuzu Motors Co Ltd sagged 6.7% after the automaker retained its operating profit and sales forecast for the year ending March 31.
The broader Topix gained 1.2% to 968.50 in relatively active trade, with 4.12 billion shares changing hands, less than any day last week.