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Japan's Nikkei average rose 1.7% on Friday, erasing early losses as the weakening yen and rising US futures offset worries about the Federal Reserve's plan to start weaning off the US economy's dependence on cheap money.
The Nikkei rose 215.55 points to 13,230.13 after falling as low as 12,702.67 in morning trade on Fed stimulus worries. The index gained 4.3% for the week, the first weekly gain in five weeks following a confidence-sapping selloff that began last month.
The market turned up as investors responded to rising Dow Jones Industrial Average futures, which gained 0.5 %, which could see US stocks snapping a two-day losing streak later on Friday.
Market participants also said that investors chased the market higher by buying Nikkei futures.
"Investors hope that Wall Street will rise later in the day as it dropped sharply over the past two days. They want to decrease their selling positions in the Japanese market before the weekend," said a fund manager based in Tokyo.
The Fed's plan to eventually stop pumping cheap money into the world's biggest economy has raised concerns about the broad impact on growth, with the absence of liquidity support down the road prompting sharp adjustments in global asset markets.
The Dow Jones Industrial Average dropped 3.7% over the past two days.
The dollar last traded at 97.73, off from a session high of 98.29 yen on Thursday, but up from 97.20 earlier.
On Friday, exporters gained, with Canon Inc rising 1.7%, Honda Motor Co adding 2.0% and Nikon Corp up 1.3%.
"This morning's sell-off was due to ongoing reduction in investors' accumulated positions in real estate and financial shares," said Hiroyuki Fukunaga, the chief executive of Investrust. However, investors were also keen to buy into battered sectors such as exporters, which were considered cheap especially after the benchmark index hit below the 13,000-mark, he added.
Nomura Holdings , Japan's top brokerage, fell 1.2%, while Mitsui Fudosan Co declined 2.1%.
The broader Topix added 0.7% to 1,099.40, with 3.34 billion shares changing hands, below last month's average daily volume of 4.67 billion shares.
The benchmark Nikkei has lost 17% since hitting a 5-1/2-year peak on May 23 on concerns over Fed stimulus as well as slowing growth in China, Japan's second-largest export market, and disappointment over Prime Minister Shinzo Abe's recently unveiled growth strategy to revive the economy.
Japanese equities' 12-month forward price-to-earnings has also come down sharply, from a three-year high of 16.3 reached three weeks ago to 13.6, a level not seen since the Bank of Japan launched radical monetary stimulus steps in early April, according to Thomson Reuters Datastream.
Still, the index is up 7% since the BOJ announcement and has risen 27% this year, underpinned by the sweeping government efforts to pull the world's third-largest economy out of deflation.
Analysts said the market may remain volatile with a weak bias over the near term, but many of them are optimistic about the outlook for Japanese equities on expectations of higher company earnings helped by a weaker yen.
"There is no need to become pessimistic about Japanese stocks. I regard this as a mere correction before the next round of bull-run," said Kenichi Hirano, a market analyst at Tachibana Securities.
He predicts the Nikkei will break through the 16,000-mark later this year.
