The Nikkei average eked out a 0.08 per cent gain to close at its highest in three months on Monday as Komatsu Ltd. (6301.T: Quote, NEWS, Research) jumped on strong corporate capital spending data, but worries about falls in Chinese stocks curbed gains.
Mitsui OSK Lines (9104.T: Quote, NEWS , Research) and other shipping firms sailed higher following Credit Suisse upgrades and Toyota Motor Corp (7203.T: Quote, NEWS, Research) rose after its strong US sales data for May.
While some agreed that the market is ready to aim higher, others said falls in China stocks and rises in Japanese government bond yields could keep investors from aggressively pushing prices higher. "The Chinese market does not have much liquidity and when it moves, it moves in one direction. Any big swings should fuel concerns about global money investing in emerging markets and other risky assets," said Norihiro Fujito, general manager at Mitsubishi UFJ Securities Co Ltd's investment research and information division.
The Nikkei <.N225> added 14.54 points to 17,973.42, the highest close since February 27. The broader TOPIX index <.TOPX> gained 0.28 per cent to 1,772.84.
Government data showed that Japanese companies increased spending on plant and equipment by 13.6 per cent in January-March compared with the same quarter last year, above a consensus market forecast for a 9.6 per cent increase.
"The market seems to be on an upward momentum and economic data is showing good numbers," said Fujio Ando, senior managing director at Chibagin Asset Management. "Investors should return to Japanese stocks from emerging markets" given the strong fundamentals, he added.
Trade volume grew with 2.6 billion shares changing hands, compared with last week's daily average of 2 billion shares. Advancing shares outnumbered decliners by 913 to 673.
Rising interest rates
Amid growing expectations that a Bank of Japan rate hike may come in the next quarter, yields on government bonds rose making them an attractive financial instrument compared with equities, Fujito of Mitsubishi UFJ Securities said.
The two-year yield <JP2YTN=JBTC>, for instance, rose as high as 0.995 per cent before easing slightly to 0.990 per cent, with traders eyeing a rise above 1.0 per cent for the first time in 10 years.
"Tokyo Electric Power has a dividend yield of around 1.5 per cent, but if the two-year government bond, a risk-free financial instrument, is yielding 1 per cent, stocks could be losing their allure," he said, referring to Tokyo Electric Power Co (9501.T: Quote, NEWS , Research), Japan's largest private electric power company.
In the shipping sector, Mitsui OSK rose 4.2 per cent to 1,768 yen and Nippon Yusen KK (9101.T: Quote, NEWS, Research) surged 5.2 per cent to 1,193 yen. Credit Suisse upgraded shares of Nippon Yusen to outperform from neutral and raised target prices for it and its peers.
The Japan Iron and Steel Federation announced on Friday that Japan's steel exports rose 9.9 per cent in April in terms of volume, after a 3.6 per cent drop in March, helping steel shares.
JFE Holdings (5411.T: Quote, NEWS, Research) gained 3 per cent to 7,790 yen and Nippon Steel Corp (5401.T: Quote, NEWS, Research) climbed 1.1 per cent to 892 yen.
Shares of Toyota climbed 1.2 per cent to 7,550 yen after data showed that Japan's top automaker shot past all its rivals with a 10 per cent gain in US car sales in May. [ID:nN01349289]
Decliners included NTT DoCoMo Inc (9437.T: Quote, NEWS , Research), which fell 1.5 per cent to 204,000 yen after HSBC cut its rating on Japan's largest mobile phone operator to "underweight" from "neutral".