Japan's Nikkei share average broke above 9,600 and hit a seven-month closing high on Friday, on track for its best February in two decades as strong economic signals drive a global equities rally, although worries are emerging of a looming correction.
Equities have been buoyed by a run of robust economic data out of the United States, as well as the European Central Bank's liquidity injection of nearly half a trillion euros and further easing steps by the Bank of Japan and the Bank of England. The Nikkei is up more than 14% so far this year.
Investors and funds are holding off from selling as the rally seems to have further room to run, said Masayuki Otani, chief market analyst at Securities Japan.
"The Nikkei's gains are positive as investors are buying back stocks that were heavily sold off last year and investors are rotating daily through sectors like iron and steel, and financial stocks," he said.
The Nikkei advanced 0.5% to 9,647.38, its highest close since August 4 last year, and gained 2.8% on the week.
Among bluechips, Nippon Steel Corp rose 3.5%, while Sony Corp gained 3% and Honda Motor Co advanced 2.7%.
Banks also outperformed in heavy trade, with Mitsubishi UFJ Financial Group up 1.7%, topping the turnover list, while Mizuho Financial Group gained 2.3% and Sumitomo Mitsui Financial Group was up 1.6%.
Bucking the overall positive trend, Elpida Memory Inc tumbled 4.9%, giving back some of the previous day's 12% rally, after saying it plans to double the number of common shares it can issue as it struggles to meet debt repayment deadlines and turn around its struggling business.
Trading volume on the main board edged up, with 2.55 billion shares changing hands on Friday compared with 2.54 billion shares in the previous session.
The broader Topix added 0.6% to 834.29.
Risk of correction
While some market participants expect a near-term assault on the closely watched 10,000 mark for the Nikkei benchmark, there are also signs that the market may have overshot and is at risk of a correction.
The benchmark Nikkei is deep in "overbought" territory, with the 14-day relative strength index at 81.5. Seventy or above is considered overbought.
"The market is overheated and there is fear of a pullback but using this momentum to rally and then gaining some stability would be ideal," said Hiroyuki Fukunaga, CEO of investment advisory firm Investrust.
"Right now we are sprinting and there's the runner's high associated with that, but where we want to be is in a marathon," he said, adding that foreign money and buying of index futures had supported the rally.
Nomura wrote in a report on Thursday that the benchmark's rally was likely to pause for a week or two before it tested 10,000, a level not seen since early August.
"We see the next upside target as the 8 July 2011 rally high of 10,207, close also to the 10,169 level representing a rise of twice the magnitude of the decline from the October 2011 high to the November low, but we think a cooling off period of a week or two will be needed before an attempt is made at the 10,000 level," it said.
But some players warned of a likely correction in the coming months.
"I think the correction will come in March and April and it will fall back towards 9,000 or so due to earnings forecasts being revised down for next fiscal year," said Ryota Sakagami, chief strategist of equity research at SMBC Nikko Securities. "That will weigh on the Japanese market."
Other technical indicators remained positive, however. The Nikkei's 25-day moving average broke above its 200-day average to form a "golden cross" on the charts, a bullish signal.
