The Nikkei share average rose to its highest in nearly seven years on Monday, gaining 0.51 percent as Softbank Corp., Nippon Steel Corp. and other firms popular with retail investors benefited from improving market sentiment.
Shares of Nikko Cordial Corp., Japan's third-largest brokerage, shot up 13.2 percent to 1,371 yen. Citigroup is in talks to buy a one-third stake in Nikko, which faces a possible delisting due to an accounting scandal, financial industry sources told Reuters on Saturday.
Retail investors, many of whom were hit with big losses in last year's small-cap sell-off, were now returning to stocks, on expectations of higher profits from leading companies such as Nippon Steel, market participants said.
"With the rebound of Sony Corp. and steel companies, individual investors have bounced back a lot," said Katsuhiko Kodama, senior strategist at Toyo Securities.
The Nikkei finished the morning session up 92.43 points at 18,280.85, after earlier hitting 18,300.39, its highest since May 2000.
The broad TOPIX index was up 0.35 percent at 1,821.30, after earlier hitting 1,823.46, its highest since November 1991.
Mobile telephone provider Softbank, a favourite of Japanese retail investors, rose 3.1 percent to 3,030 yen. Its shares have recovered some 31 percent so far this year, after a decline of 54 percent last year.
Nippon Steel gained 2.4 percent to 841 yen after earlier hitting its highest in more than 17 years. The world's second-largest steel maker has gained 23 percent this year, helped by expectations of better earnings and further consolidation in the industry.
READY TO SELL?
But some market participants said they were expecting a decline in the near term, given recent gains.
"I think we are ready for a slowdown," said Ken Masuda, senior dealer in equities at Shinko Securities.
"I think steel stocks and shippers look ripe for some selling."
Shipping stocks have gained about 22 percent so far this year.
Shares of Nissan Chemical Industries Ltd. jumped 8.7 percent to 1,596 yen after brokerage Goldman Sachs raised its rating on the chemical manufacturer to "buy" from "neutral", citing its prospects for earnings growth.
Goldman Sachs said in a note on Friday the company's earnings growth was likely to outpace the industry average in the next year.
Sony rose 0.8 percent to 6,400 yen after Merrill Lynch on Monday raised its rating on the consumer electronics giant to "buy" from "sell" and lifted its target share price to 7,600 yen from 5,100 yen.
The company was likely to benefit from continuing yen weakness and the strength of overseas economies, Merrill said.
Trade volume remained active with 1.5 billion shares changing hands, compared with last week's morning average of 1.3 billion shares. Advancers outnumbered decliners 964 to 636.