Japan's Topix index gained for an eighth day, extending its longest winning streak in 18 months, after the yen weakened and as brokerages raised investment recommendations on some companies.

Sumitomo Mitsui Financial Group Inc., Japan's 2nd-largest bank by market value, climbed 2.3 percent after Nomura Holdings Inc. said the nation's economy will rebound sooner than expected. Sony Corp., Japan's biggest exporter of consumer electronics, advanced 2.6 percent. Toshiba Corp., a nuclear power-plant maker, and Asahi Glass Co. advanced at least 2.2 percent after brokerages increased their ratings on the companies.

"The worst of the economic conditions are behind us," said Junichi Misawa, head of equity investment at Tokyo-based STB Asset Management Co., which oversees about $14 billion. "If the global economy continues to recover, that should boost Japanese stocks."

The Nikkei 225 Stock Average rose 0.6 percent to 10,808.29 at the close in Tokyo. The broader Topix index gained 0.5 percent to 967.30. The Topix's eight-day advance was the longest winning streak since a 13-day run that ended Aug. 4, 2009.

The value of stocks traded on the Tokyo Stock Exchange's first section totaled 1.84 trillion yen ($22 billion), the highest level since Jan. 21.

The Topix has gained 7.6 percent this year, the most among the major Asia-Pacific indexes. That has driven the average price of stocks in the gauge to 16.5 times estimated earnings, the highest level since July.

"There's strong buying interest in the market," said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc.

Eoin Treacy's view Some disappointed investors may believe that there is an element of the boy who cried wolf to the Japanese market. It has been a serial underperformer over the last couple of decades and despite a brief sojourn during Koizumi's term in office, the environment remains challenging.

At Fullermoney, we have long pointed out that a weak Yen, particularly against the US Dollar, was likely to be a catalyst which would help to revive exporter competitiveness and investor interest in Japan. The Yen has at least stopped appreciating against the Dollar and a sustained move below ¥83 would be required to question scope for some additional Yen weakness. (Also see David's Comment yesterday).

I last reviewed some of Japan's leading shares in Comment of the Day on January 5th.

Today's action by some of Japan's larger banks is a further indication that investor interest is turning back toward Japan and people are beginning to bet on its prospects as a catch-up candidate. Mitsubishi Tokyo Financial, Sumitomo Mitsui and Mizuho are all performing in line with the Topix Banks Index. It found support in the region of the 200-day MA three weeks ago and has now rallied to test the progression of lower rally highs. A sustained move below 125 would be required to question potential for some additional upside. Sumitomo Trust & Banking remains in a two-year base formation and is currently rallying towards the upper side.

Aozora Bank, Minato Bank and Towa Bank are all relatively small banks compared to those mentioned above. However they are clear sector leaders. They have all completed base formations in the last few months and have been demonstrating impressive relative strength since at least November. At this stage both Minato Bank and Towa Bank are a little overbought in the short term but sustained falls back into their bases, which appear unlikely, would be required to question recovery potential.

The Topix 2nd Section Index of small caps has often been a leader in Japan and has rallied impressively since November. It appears to be in the process of completing a relatively extended Type-3 base formation. The Index is currently trading at a Price/Book of 0.71. Assuming recovery potential and a weakening Yen, this is not an expensive market.

The Topix Index has been ranging below 1000 since late 2008 in a developing Type-3 base formation and is currently rallying towards the upper side. A sustained move above the psychological 1000 will confirm a return to medium-term demand dominance.