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Japanese shares climbed 2.3% to their highest level in nearly five years on Wednesday as the yen resumed its slide towards 100 to the dollar.
Currency-sensitive exporters led the gains as the focus shifts to the earnings season and the impact of a weaker yen on profit forecasts for the rest of the year.
The benchmark Nikkei added 313.81 points, the most in 12 sessions, to 13,843.46, marking the highest level since June 2008. The yen hit a low of 99.77 against the dollar on the day, within striking distance of 100.
"It's very hard to be bearish when the yen is traded at 99 to 100 (to the dollar). 100 yen is fantastic for the market," said Stefan Worrall, director of equity cash sales at Credit Suisse.
"A weaker yen has much more immediate impact on exporters' earnings. Even if they unveil guidance based on a conservative exchange rate, the benefit should be very transparent."
Mazda Motor Corp, Kyocera Corp , semiconductor equipment maker Tokyo Electron and TDK Corp were up between 3.6 and 5.8%.
Gains in U.S. stocks overnight on the back of strong earnings from the likes of Netflix Inc also lifted sentiment in Tokyo.
However, shares in financials and asset-related firms, which could benefit from Abe's reflationary policies, took a breather on Wednesday and underperformed the overall market.
Topix banking sector subindex added 0.6%, while both the secu rities sector and the warehouse and wharf operators ended up 0.5% each.
The Nikkei has surged 60 % and the yen has weakened 23% versus the dollar since mid-November, when Shinzo Abe, who became prime minister in December, promised bold monetary and fiscal expansionary policies during his election campaign.
The broader Topix index rose 1.8% to 1,164.35 in active trade, with volume hitting the highest in nine sessions as 4.60 billion shares changed hands.
EARNINGS EYED
Steelmaker JFE Holdings Inc soared 6.6 %, extending the previous session's 0.5% rise after it returned to a recurring profit in the January to March quarter from a loss in the year-earlier period.
Mitsubishi Motors Corp shot up 20% to a 2-1/2-month high after the company estimated its net profit for the fiscal year ended March 31 at 38 billion yen, nearly triple the original forecast issued in February, citing a weak yen and cost cuts. The carmaker will announce its FY2012/13 earnings results on Thursday.
After the market close, Canon Inc raised its full-year operating profit forecast by $300 million as a weakening yen triggered by Japan's deflation-fighting policies inflates its overseas earnings, despite smartphones sapping compact camera sales. Ahead of the earnings, Canon shares added 1.3%.
Yen weakness is expected to give Japanese companies a big lift in their earnings, especially for the current fiscal year ending March 2014.
"Everyone is looking to the guidance and especially how the currency will start to have an impact," said a Tokyo-based analyst, who declined to be identified.
He said retail investors were back in force, pushing up small- and mid-cap stocks, with the Mothers index up 6.6% to a more than five-year high.
Although it is still early in the latest quarterly reporting cycle, seven of the eight Nikkei companies that have reported so far missed market expectations, according to Thomson Reuters StarMine. That compared with 62% coming in below analysts' forecast in the previous quarter.
"A monetary shock tends to push up personal consumption in a relatively short run probably via wealth effects, but an upward impact on personal consumption tends to fade out rather quickly after two quarters," Credit Suisse wrote in a report.
"This observation suggests that a monetary shock does not lead to a meaningful recovery in the wage level, making purchasing power of consumers deteriorate over a medium run."
