TOKYO (Reuters) - The Nikkei average climbed to a two-month high on Wednesday, with exporters gaining after the yen hit a seven-month low against the dollar on expectations that a new government will aggressively push the Bank of Japan to expand monetary stimulus.
Among exporters, the transport equipment sector was a notable gainer as foreigners bought carmakers such as Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T), which advanced 2.2 percent and 3.2 percent respectively.
Shinzo Abe, leader of the main opposition Liberal Democratic Party (LDP), has called for more extreme measures from the central bank, including setting a 3 percent inflation target to pull the export-reliant economy out of deflation.
His comments ahead of a December 16 national election have whipsawed the yen, which hit a seven-month low of 81.975 yen to the dollar on Wednesday. A softer Japanese currency inflates exporters' overseas earnings when repatriated and increases their sales competitiveness.
Analysts said that sector-rotation may be seen during the next few days amid rapid rises in the Nikkei as some investors want to reshuffle their portfolios while securing profits on certain sectors.
"Some investors are alarmed by the market's fast-paced rises, and profit-taking is already seen in non-exporter sectors," said Yoshiyuki Kondo, an analyst at Daiwa Securities, adding that a further correction of about 200 points is possible in the Nikkei as the index has added about 500 points in the past week.
The property sector was heavily hit, with the Topix real estate index .IRLTY.T falling 1.6 percent to post the biggest drop on the board. Mitsui Fudosan (8801.T) dropped 2.3 percent to 1,737 yen and Mitsubishi Estate (8802.T) shed 1.4 percent to 1,602 yen.
"The sector had been up on a recovery in building vacancy rates and hopes for monetary easing, but it has become a target of profit-taking because it is little-affected by daily dollar-yen moves," Kondo said.
The real estate sector has added 5.7 percent over the past week, and gained 47 percent this year.
Index heavyweight Softbank rose 3.0 percent to 3,005 yen after J.P. Morgan raised its price target on the mobile operator by 8.6 percent to 3,800 yen.
"The Japanese stock market is completely dependent on the Japanese yen...so it's very simple. Maybe foreign investors will rush into the Japanese stock market," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
"If you look at the trading volume last Friday and the last couple of days, not only short-covering but also the long-only, new money is entering the Japanese stock market."
Sakuma said he was tilting his portfolio towards exporters, such as auto parts makers, and camera and electronic device makers and cutting his exposure to domestically-focused companies such as retailers.
The benchmark Nikkei is up 9.1 percent this year, boosted by the 5.7 percent rally from November 14 to 19. Still, the Japanese index lags a 10.4 percent rise in the U.S. S&P 500 .INX and a 10.2 percent gain in the pan-European STOXX Europe 600 .
Additional reporting by Dominic Lau; Editing by Matt Driskill and Eric Meijer