Tokyo's Nikkei index ended at a two-month high Friday after briefly soaring more than 3 percent while the yen remained firm against the U.S. dollar, with U.S. inflation data fueling speculation the U.S. Federal Reserve may slow its pace of interest rate hikes.
The 225-issue Nikkei Stock Average ended up 817.47 points, or 2.98 percent, from Thursday at 28,263.57. The index ended above the psychologically-important 28,000 mark for the first time since Sept. 13. The broader Topix index finished 41.10 points, or 2.12 percent, higher at 1,977.76.
On the top-tier Prime Market, gainers were led by electric appliance, service and rubber product issues.
Tokyo stocks rallied throughout the day, mirroring a surge by the Dow Jones index overnight to a nearly three-month high after the consumer price index rose 7.7 percent in October from a year earlier, below the market's expectation of 8.2 percent.
"The data revitalized expectations of slower rate hikes, with a view now emerging that the Fed will conduct a 0.50 percentage point interest rate hike in December and a 0.25 point raise in February," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.
"The U.S. central bank may even stop raising rates from around May," Fujito added.
The Fed increased rates by 0.75 percentage point for the fourth consecutive time at its most recent monetary policy meeting as it moves to tame stubbornly high inflation.
Higher interest rates lead to increased borrowing costs for companies and households. A cycle of aggressive rate hikes by the Fed has been pressuring stock prices worldwide.
Among Prime Market issues, advancing issues outnumbered decliners 1,260 to 517, while 59 ended unchanged.
Semiconductor-related issues were higher after the Japanese government on Friday unveiled its strategy for future domestic production of advanced chips. Chip-manufacturing equipment maker Tokyo Electron surged 3,450 yen, or 8.4 percent, to 44,370 yen, while chipmaker Screen Holdings soared 650 yen, or 7.8 percent, to 8,940 yen.
Trading volume on the Prime Market rose to 1,743.68 million shares from Thursday's 1,270.37 million.
In the foreign exchange market, the Japanese currency continued to show strength after rising briefly by over 6 yen to a two-month high of 140.20 against the dollar overnight in New York.
As the Fed is expected to keep raising rates, "the dollar-buying trend will remain, but investors are likely to refrain from buying the U.S. unit aggressively for a while" following the inflation data, said Takuya Kanda, senior researcher at the Gaitame.com Research Institute.
At 5 p.m., the dollar fetched 141.18-20 yen compared with 140.90-141.00 yen in New York and 146.30-31 yen in Tokyo at 5 p.m. Thursday.
The euro was quoted at $1.0243-0245 and 144.62-66 yen against $1.0205-0215 and 143.80-90 yen in New York and $0.9997-9999 and 146.26-30 yen in Tokyo late Thursday afternoon.
The yield on the bellwether 10-year Japanese government bond dipped 0.010 percentage point from Thursday's close to 0.235 percent, following a decline in U.S. Treasury yields overnight.