The U.S. dollar rose above the 114 yen line Friday in Tokyo, its highest level in nearly three years, as an improvement in U.S. employment conditions raised expectations of higher interest rates while boosting the Nikkei index to a two-week high led by exporters.

At 5 p.m., the dollar fetched 114.09-10 yen compared with 113.63-73 yen in New York and 113.37-38 yen in Tokyo at 5 p.m. Thursday. It rose to its highest level since November 2018.

The euro was quoted at $1.1611-1613 and 132.47-51 yen against $1.1593-1603 and 131.76-86 yen in New York and $1.1607-1609 and 131.59-63 yen in Tokyo late Thursday afternoon.

The 225-issue Nikkei Stock Average ended up 517.70 points, or 1.81 percent, from Thursday at 29,068.63, its highest close since Sept. 30. The broader Topix index of all First Section issues on the Tokyo Stock Exchange finished 36.96 points, or 1.86 percent, higher at 2,023.93.

Every industry category gained ground, led by machinery, electric machinery, and metal product issues.

The U.S. dollar climbed to the lower 114 yen range from the upper 113 yen level after a drop in new applications for unemployment benefits in the United States stirred expectations of higher interest rates in the country, dealers said.

"An improvement in the U.S. employment conditions is expected to spur economic recovery, while a divergence in economic policies between the United States and Japan may push the U.S. dollar up further," said Yuji Saito, head of the foreign exchange department at Credit Agricole Corporate & Investment Bank in Tokyo.

New applications for U.S. unemployment benefits in the week through last Saturday fell below 300,000 for the first time since the COVID-19 pandemic in March, according to the U.S. Labor Department.

The data strengthened market expectations that the scaling back of asset purchases could start as early as November, which could be followed by interest rate hikes in the upcoming year.

The Bank of Japan, in contrast, has kept its ultraeasy monetary policy intact to support the economy from the COVID-19 fallout, while the country's inflation rate remains subdued.

The U.S. currency had been stuck in the 112 yen range for the past three years, but investors may try to test the 115 yen range now that it has broken through 114 yen, Saito added.

Meanwhile, stocks tracked overnight gains on Wall Street, with the Nikkei benchmark rising over 500 points to retake the 29,000 mark. Sentiment was also lifted by a weaker yen and firm Asian markets in the afternoon, brokers said.

Technology shares were notably higher after Taiwan Semiconductor Manufacturing Co. said Thursday it plans to build a chip-making factory in Japan in 2022 and start operations there in 2024, in a move expected to ease semiconductor shortages.

The market was also supported after the U.S. producer price index in September grew from the previous month more slowly than market expectations, easing fears about rapid inflation, brokers said.

On the First Section, advancing issues outnumbered decliners 1,989 to 155, while 40 ended unchanged.

Among exporters, electronics manufacturer Panasonic climbed 28.0 yen, or 2.0 percent, to 1,404.5 yen, while automakers Mitsubishi Motors advanced 16 yen, or 4.5 percent, to 368 yen, and Nissan Motor grew 7.4 yen, or 1.3 percent, to 587.8 yen.

Sony Group, which is expected to jointly run the chip-making factory with TSMC, gained 335 yen, or 2.7 percent, to 12,890 yen, while auto parts maker Denso, which is reportedly considering joining the project, rose 255 yen, or 3.3 percent, to 7,902 yen.

Trading volume on the main section dropped to 1,143.20 million shares from Thursday's 1,152.66 million shares.

The yield on the benchmark 10-year Japanese government bond dipped 0.005 percentage point from Thursday's close to 0.075 percent, tracking an overnight fall in U.S. counterparts.