The Nikkei 255 Stock Average closed above 11,000 yesterday for the first time in three months.
Sony Corp led gains among exporters after a US survey showed that consumer confidence in the world's largest economy improved this month by the most in a decade, suggesting demand may increase and boost profit.
The report gives "investors a reason to be more bullish as it shows the export environment is getting better," said Yoji Takeda, who helps manage US$250 million as the head of Japanese equities at RBC Investment Management (Asia) Ltd.
"Investors are becoming more confident about exports, especially digital products, and sales in North America seem to be pretty strong."
Takeda favors shares of digital-electronics makers such as Matsushita Electric Industrial Co.
The Nikkei climbed 179.13, or 1.7 percent, to 11,036.33 at the 3pm close in Tokyo, finishing above 11,000 for the first time since Oct. 21.
The broader Topix index added 13.20, or 1.3 percent, to 1,072.17, with computer-related stocks contributing 18 percent of the gain. Benchmarks rose to three-month highs.
Nikkei 225 futures for March delivery rose 1.8 percent to 11,020 in Osaka and added 1.6 percent to 11,025 in Singapore.
Sony, the maker of Vaio computers, advanced ?130, or 3.1 percent, to 4,300. Sony gets a third of its sales from the US.
Matsushita, the world's No. 1 maker of consumer electronics, climbed ?41, or 2.6 percent, to 1,632, the highest since July 10, 2002.
Matsushita exports 35 percent of its products.
The University of Michigan's preliminary consumer sentiment index for January surged to 103.2 from a reading of 92.6 in December.
The 10.6-point gain was the biggest since a 12-point improvement in November 1992.
The index rose to its highest since November 2000. Economists projected an increase to 94 this month.
US consumers and businesses buy about 30 percent of Japan's exports annually.
"The overseas economy continues to remain strong" helping stocks, Satoshi Kosaka, who helps manage US$920 million as chief fund manager at UFJ Asset Management Co in Tokyo.
Sharp Corp and other companies that rely on overseas sales also advanced after the yen weakened against the dollar in New York trading, bolstering the value of their overseas sales.
The yen, which appreciated 11 percent in the past year, fell to as low as 106.99 per dollar in New York trading, after strengthening to 105.73.
It recently traded at 106.57. A weaker local currency helps exporters by inflating the value of their overseas earnings and makes their goods shipped abroad cheaper.
Japan spent a record ?Y20.1 trillion (US$189.4 billion) last year to stem the yen's gain.
About 80 percent of companies said they would be hurt if the yen trades between ?Y100 and ?Y105 to the dollar, a survey by the trade ministry showed.
Computer-related companies, which shipped a third of Japan's exports, paced gains on the Nikkei.
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