The Nikkei stock index on Friday finished up 28 percent from a year earlier, ending at its highest level since 1989 on the back of an economic recovery from the coronavirus pandemic and solid company earnings supported by the yen's weakness.
Stocks were mixed on the final trading day of the year, however, with the 225-issue Nikkei Stock Average finishing down 75.45 points, or 0.22 percent, from Thursday at 33,464.17, the highest year-end level since the record high of 38,915.87 during Japan's asset-inflated bubble economy.
The broader Topix index finished 4.37 points, or 0.19 percent, higher at 2,366.39.
Japanese financial markets will be closed from Saturday through Wednesday for the New Year holidays.
The U.S. dollar, which was trading around the 130 yen level in January, hit this year's high of 151.80 yen in November on buying spurred by aggressive interest rate hikes by the U.S. Federal Reserve, while the Bank of Japan maintained an ultraloose monetary policy.
On Friday, the U.S. currency largely hovered in the mid-141 yen zone during the day, briefly rising to the upper 141 yen level, rebounding from a five-month low of 140.27 yen registered in overseas trading overnight.
At 5 p.m., the dollar fetched 141.39-41 yen compared with 141.35-45 yen in New York and 140.80-82 yen in Tokyo at 5 p.m. Thursday.
The euro was quoted at $1.1065-1066 and 156.45-49 yen against $1.1056-1066 and 156.40-50 yen in New York and $1.1115-1117 and 156.50-54 yen in Tokyo late Thursday afternoon.
The yield on the benchmark 10-year Japanese government bond ended at 0.615 percent, up 0.030 percentage point from Thursday's close, as the debt drew selling following the rise in the long-term U.S. Treasury yields.
The Nikkei began 2023 at approximately 26,000 and reached a peak above 33,700 in July, as the yen's appreciation against the dollar helped lift corporate earnings. A weaker yen increases the value of overseas profits for exporters when repatriated.
The cheaper yen also helped attract foreign visitors to Japan after its COVID-19 border controls were lifted for all arrivals in late April, boosting inbound tourism.
Although stocks faced selling pressure as rising interest rates in the United States and Japan stirred concerns about higher borrowing costs, they regained an upward momentum at the end of the year.
The market was also buoyed by the Tokyo Stock Exchange's market reforms, which encouraged listed companies to focus on enhancing shareholder value through such measures as share buybacks, analysts said.
Billionaire investor Warren Buffett's purchase of shares in Japanese trading houses also played a pivotal role in attracting foreign investors back to the Japanese market, they said.
"Expectations grew for improved earnings with Japanese companies," said Makoto Sengoku, senior equity market analyst at the Tokai Tokyo Research Institute. "This year marked a reassessment of Japanese stocks, as they had been undervalued for a long time."
On Friday, trading was quiet ahead of the year-end and New Year holidays, with the Nikkei fluctuating around Thursday's closing level.
On the top-tier Prime Market, decliners were led by mining and marine transportation issues, while the main gainers were transportation equipment and insurance shares.
Technology issues were sold following overnight declines in their U.S. counterparts, but buying of exporters kept the Nikkei from falling sharply, analysts said.
"Given the unpredictability of what might happen during the year-end and New Year period, few investors were willing to take aggressive risks," said Shingo Ide, chief equity strategist at the NLI Research Institute.
In the technology sector, chip manufacturing equipment maker Tokyo Electron fell 210 yen, or 0.8 percent, to 25,255 yen, and chip wafer maker Sumco went down 4.5 yen, or 0.2 percent, to 2,114.5 yen.
Among exporters, Toyota Motor advanced 34.5 yen, or 1.3 percent, to 2,590.5 yen, and Nissan Motor gained 2.5 yen, or 0.5 percent, to 554.2 yen.