TOKYO Japan's Nikkei average rose above the 10,000 mark for the first time in more than eight months on Wednesday with exporters and financials leading the gains on growing expectations of monetary easing under a new Japanese government.
Signs of progress in U.S. fiscal talks also boosted sentiment and by the midday break, the Nikkei was up 1.3 percent at 10,050.32 after rising as high as 10,060.93 earlier, its highest level since April 3.
Volume was high, with about 2.12 billion shares changing hands at the midday break, compared with last week's average daily turnover of 2.29 billion shares.
Analysts said investors would likely try to chase the Japanese market higher towards the end of the year, with the 2012 high of 10,255.15 reached on March 27 a target.
"The market is already in overbought territory, but investors are increasingly being alarmed that there is a risk of not having Japanese stocks in their portfolios," said Hiroichi Nishi, general manager at SMBC Nikko Securities.
"It's like, you are driving at 500 km per hour while the speed limit is 100 km per hour, and even a cop cannot slow you down."
With the yen retreating further, exporters were in demand, with Toyota Motor Corp (7203.T) adding 2.3 percent, Honda Motor Co (7267.T) gaining 3.6 percent and Canon Inc (7751.T) soaring 4.6 percent.
The Bank of Japan starts a two-day meeting on Wednesday under intense political pressure to expand its asset-buying programme aggressively to snap the world's third-biggest economy out of its fourth recession since 2000.
Shinzo Abe, who was elected as prime minister on Sunday, called for the central bank to embark on "unlimited easing" and set an inflation target of 2 percent which has driven the yen to lows.
On Wednesday, the dollar stood at 84.28 yen, not far off a 20-month high of 84.55 set Monday.
The Nikkei's recent gains took its 14-day relative strength index to 83.24, well above 70 which is deemed overbought and often indicates a possible near-term correction.
The "toraku" ratio, or up-down ratio, for the first section of the Tokyo Stock Exchange was at 152. It is calculated by dividing the 25-day moving average of stocks that gained by the 25-day average of those that fell. A level above 120 signals an overheated market.
"We need to monitor if market's strength is followed with consistent volume," said Hikaru Sato, a senior technical analyst at Daiwa Securities. "A lot of foreign investors will be taking Christmas holidays from later this week, so if trading volume becomes thinner, that's when a correction may be seen."
APPETITE FOR HIGH BETA STOCKS
In the United States, hopes are high a deal will be struck to prevent the economy from going over the "fiscal cliff", with the White House confident of reaching an agreement.
As investors gained confidence in Japanese shares on the back of a weaker yen, they added high-beta financial shares to their portfolios.
The insurance sector .IINSU.T soared 4.1 percent, being the best sectoral performer. T&D Holdings Inc (8795.T) added 2.8 percent and Dai-ichi Life Insurance Co (8750.T) jumped 5.9 percent.
Securities and banking shares attracted buying as well, with Nomura Holdings (8604.T) advancing 4.2 percent and Mitsubishi UFJ Financial Group (8306.T) soaring 5.6 percent and Sumitomo Mitsui Financial Group (8316.T) adding 3.4 percent.
"Investors are pouring in new money and expanding their 'hot picks' from exporters to other sectors," said Naoki Fujiwara, a fund manager at Shinkin Asset Management.
The broader Topix .TOPX index gained 1.7 percent to 831.01.
The Nikkei is up 18.9 percent this year, with 16 percent of that gain coming in the last five weeks as the yen weakened on the prospect of Abe's election.
(Editing by Sanjeev Miglani)