Japan's Nikkei average rallied to a six-month closing high and the broader Topix index breached the 800 level on Wednesday after the Bank of Japan (BoJ) expanded its asset buying programme the previous day.
The BoJ's surprise move, which included adding 10 trillion yen to its asset purchase programme, pushed the yen to a 3-1/2-month low against the dollar, lifting the appeal of exporters' shares.
Toyota Motor Corp rose 4.7% and Honda Motor Co jumped 3.3%, while TDK Corp advanced 4.5% and Komatsu Ltd rose 5.3%.
Financial shares outperformed the market, with Nomura Holdings Inc jumping 5.4%, Mitsubishi UFJ Financial Group up 4.1% and Sumitomo Mitsui Financial Group climbing 4%.
The benchmark Nikkei rallied 2.3% to 9,260.34, its highest close since last August and soaring above its 200-day moving average near 9,050 that had been seen as a resistance point.
Market participants said the Nikkei was pushed higher by short-covering triggered after it rose above its 200-day average. Strategists said it would likely stay in the 9,200 range this week but continue to test higher if the yen kept softening against the dollar.
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Trading volume spiked, with 2.9 billion shares changing hands on the main board, its heaviest daily volume since last August.
The broader Topix advanced 2.1% to 802.96, its first rise above 800 in six months.
"Excess liquidity in the global market is pushing investors back to equities, and the latest move by the central bank (BoJ) has tipped the dollar/yen rate to a favourable range so the market rally looks likely to continue for some time," said Hiroyuki Fukunaga, CEO of Investrust.
The dollar traded at 78.50 yen after hitting a fresh 3-1/2-month high of 78.67 yen in the wake of the BOJ steps.
Yasuo Sakuma, a portfolio manager at Bayview Asset Management, said the central bank's easing could push the Nikkei gradually to 10,000 or higher in the next few months.
"If the BOJ's action leads to weakness in the yen (for a longer period), exporters such as autos, auto parts and technology firms, as well as cyclical sectors such as maritime transport and financials will be the best performers."
Japan's sea transport subindex was the best performing sector and jumped 5.5%, with Nippon Yusen KK, Kawasaki Kisen KK, and Mitsui O.S.K. Lines Ltd surging 3.8-7.6%.
Bucking the overall trend was Elpida Memory Inc , which topped the main board as the biggest%age loser, at one point falling by its daily limit of 80 yen, after it flagged concerns about its survival, citing stalled discussions with lenders on financial support ahead of debt repayment deadlines. It closed down 54 yen or 14.4%.
Limited gains?
Despite the Nikkei logging its biggest daily percentage gain since September 27 last year, some market players were less bullish on the outlook.
"I think the yen's softening is limited," said Naohito Miura, a fund manager at Shinkin Asset Management. "Yesterday's move (by the BOJ) was simply done on the back of the Federal Reserve's move, and I think it will be difficult for the dollar to escape the 75-80 yen range."
Technical indicators showed the Nikkei could be ripe for a correction as it was deep in "overbought" territory, with its 14-day relative strength index at 74.69.
Nomura analysts said the BoJ move helped ease concerns about Japanese corporate earnings, which were depressed by a strong yen, but they expected the Nikkei to consolidate around 9,000 to 9,200 before heading towards 10,000 in late February or early March.
"Given that short-term overheating, as indicated by technicals, has not cooled down much, we think profit-taking could pick up in the near term and that consolidation could last a little longer owing to a timing correction," Nomura said in a note.
Deutsche Bank was also cautious, saying it would be "premature" to say the central bank's actions will reverse deflation and soften the yen.
The benchmark Nikkei is up 9.5% so far this year as an improving outlook for the US economy and an injection of 489 billion euros of three-year loans by the European Central Bank to boost liquidity counters disappointing corporate earnings in Japan.