The Nikkei stock index gained 0.64 percent Tuesday, tracking overnight gains on Wall Street and investor optimism about upcoming earnings reports.
The Nikkei 225 index added 98.34 points to finish at 15,395.16, while the broader Topix index of all first-section issues gained 8. 22 points, or 0.65 percent, to finish at 1,273.68.
In addition to stocks in New York lifting investors sentiment here and spurring a broad range of buying, local analysts said concerns over the health of the eurozone, triggered by a Portuguese bank, have begun to recede following a reshuffle of executives.
Portugal's top bank Banco Espirito Santo (BES) upset markets last week after parent company Espirito Santo International SA defaulted on commercial paper payments, sending the Portuguese and further European markets into turmoil last week.
But local traders here said investors' nerves were eased on hearing that BES on Monday had put new executives in place, including the renowned economist Vitor Bento as chief executive, with other executives joining to replace positions formerly held by Espirito Santo family members.
"In addition to rises in U.S. stocks, investor sentiment also improved as concerns eased over the financial system in the eurozone thanks to the reshuffle of executive members of Portugal' s leading bank," said Ayako Terada at Nomura Securities Co.'s investment research department.
But the main catalyst for buying Tuesday was increasing hopes for U.S. corporate earnings and signs from the U.S. Federal Reserve that it might raise interest rates after a string of robust economic data.
"The start of the U.S. earnings reporting season is supplying a general sense of relief for equity investors, as Citigroup's numbers came in better than expected. Solid earnings also help to mollify fears that share prices overseas may be overvalued. As Japan enters its own earnings reporting season, there could be a spillover effect that helps to nudge up price multiples, which still lag U.S. and European bourses," said Naoki Fujiwara, fund manager at Shinkin Asset Management.
Investors are keenly eyeing hints from Federal Reserve Chair Janet Yellen in her semi-annual monetary policy testimony to the Senate Banking Committee later Tuesday and to the House Committee on Financial Services tomorrow, for news about the central bank's interest rates and the health of the world's largest economy, brokers here said.
In currency trading, the U.S. dollar rose slightly, fetching 101.59 yen, compared to 101.54 yen logged in New York on Monday afternoon. A weaker yen is a boon for Japanese exporters as it boosts their earnings outlooks and increases their profits made overseas when repatriated.
Among automakers, Honda accelerated 1.4 percent to 3,607 yen, while Nissan Motor Co. advanced 0.9 percent to close at 991 yen.
Rubber products found traction Tuesday, following the rise of a relevant index and Bridgestone jumped 3.4 percent to 3,874 yen, while Sumitomo Rubber Industries Ltd. advanced 1.6 percent to 1, 500 yen.
Banking issues also performed well, with megabanks Mitsubishi UFJ Financial Group jumping 1.0 percent to 606 yen and smaller rival Mizuho Financial Group gaining 0.5 percent to close the day at 201 yen.
Kyushu Electric Power also closed in positive territory, advancing 1.0 percent to 1,252 yen, following Japan's nuclear watchdog saying it will release on Wednesday a provisional report on restarting two nuclear reactors at the utility's Sendai plant.
Department store operator Matsuya Co. was another notable gainer, surging 6.9 percent to 1,145 yen, following the firm announcing a quarterly profit of 314 million yen, compared to a near 40 million yen loss logged by the firm a year earlier and a doubling of its operating profit.
Trading volume on Tuesday increased to 2.09 billion shares on the Tokyo Exchange's First Section, up from Monday's volume of 1. 92 billion shares, with advancing issues outnumbering declining ones by 1,108 to 548.