TOKYO Japan's Nikkei share average closed at a 32-month high, as persistent weakness in the yen boosted demand for exporters' shares, though comments on the currency by the economic minister trimmed Tuesday's gains.
The Nikkei rose 0.7 percent to 10,879.08, the highest close since April 30, 2010.
It rose to as high as 10,952.31 in early trade, before paring gains after Japanese Economics Minister Akira Amari said that excessive yen weakness could have a negative impact on the country.
The Nikkei has rallied about 26 percent over the past two months, spurred by the weakness in the yen after Japan's new leader Shinzo Abe called on the Bank of Japan to adopt aggressive policies to energise the ailing economy, including setting an annual inflation target of 2 percent.
Tuesday's rally took the benchmark Nikkei's 14-day relative strength index to 79.6, way above the 70-mark which is deemed overbought and often signals a near-term correction.
Analysts said that as some technical signs show the market is overheated, it is becoming increasingly sensitive to news flows and lawmakers' remarks, which could trigger a correction or profit-taking.
"The economic minister's comments soured the mood," said Masatoshi Sato, senior strategist at the investment information department at Mizuho Securities.
Amari said at a news conference that the yen's exchange rates have now been adjusted autonomously after a spell of appreciation, reflecting the current economic conditions in Japan.
But he also said that the excessive yen weakness will lead to a rise in the prices of imported goods, adversely affecting people's lives. He did not comment on what he considered a comfortable yen level.
The dollar dropped about 0.6 percent to 89.95 yen on the day. At one point, it fell as low as 88.62 yen.
Mizuho's Sato said that although the market is prone to short-term profit-taking triggered by news flows in the coming days, investor sentiment remains positive before the central bank's policy meeting on January 21-22.
"There is a fear to sell now," Sato said, adding that exporters may stay strong on expectations the Bank of Japan will be forced to take bold action to jump-start the sluggish economy.
A weak yen lifts exporters' overseas earnings when these are repatriated.
REFLATIONARY SECTORS ATTRACT BUYING
Exporters led the index higher on Tuesday, including Suzuki Motor Corp (7269.T), Panasonic (6752.T), Daikin Industries Ltd (6367.T), and Olympus Corp (7733.T), which were up between 2.7 percent and 7.7 percent.
As global risk sentiment improved, investors bought growth-sensitive stocks. The sea transport sub-index rose 3.9 percent, making it the best sectoral performer, and the mining sub-index was up 2.2 percent.
Stocks expected to benefit from Abe's reflationary policies continued to be in demand. The real-estate sub-index rose 1.4 percent.
Sharp Corp (6753.T), however, dropped 2.7 percent after the Nikkei newspaper said on Monday that Apple Inc (AAPL.O) has slashed orders with suppliers of LCD panels for the iPhone 5 in the current quarter due to weak demand.
Other Apple suppliers in Japan also came under pressure, with Foster Electric Co Ltd (6794.T) falling 1.5 percent.
The broader Topix gained 0.8 percent to 906.22 in fairly active trade, with 3.5 billion shares changing hands.
(Editing by Richard Borsuk)