The U.S. dollar remained range bound during quiet overnight trading session in Tokyo, as uninspiring economic data and global holiday season kept the markets subdued.
The Tertiary Industry Index printed a decline of -0.1%, inline with expectations. The index posted first decline in three months due to typhoons hitting Japan, keeping shoppers at home and businesses closed. The highlight of economic release was the export number that increased by 13.4% to JPY990B, supporting an outlook for stronger yen.
Japanese financial markets will be closed on Thursday due to Japanese national holiday and will reopen for a full day trading session on Friday.
The dollar was quoted at 104.20-22 yen, slightly higher from previous Tokyo close of 104.08-10 yen.
The 225-issue Nikkei Stock Average rose 83.52 points, or 0.75 percent, to 11,209.44, the broader Tokyo Stock Price Index of all First Section issues rose 6.13 points, or 0.55 percent, to 1,122.47.
Tokyo stocks extended its broad based year-end rally, closing above the key 11,200 level for the first time in over a month.
The rally is being driven by strong demand from international investors for Japanese equities. The market is propelled by perception that Japanese market is undervalued compared to other major global markets.
The main gainers were marine transport, insurance, technology, banking and pharmaceutical sectors with telecoms and utilities leading the decliners.
Banks were amongst the most heavily traded issues in terms of value with Mizuho Financial, Resona Holdings, Mitsubishi Tokyo Financial Group, UFJ Holdings and Sumitomo Mitsui Financial Group leading the banking and financial sectors.
Mizuho Financial Group, the most heavily traded issue by value in the day, extended its rally for the eights straight day to finish up 5,000 yen to 483,000 yen, closing at the levels not seen since July.
Resona, up 7 yen to 194 yen, was the day's volume leader.
Sanyo, down 14 yen to 340 yen, was under pressure after the company announced it expects to post its largest net loss of 71.0 billion yen for the current fiscal year ending next March 31, due to damages to its factory sustained in earthquakes that hit Niigata Prefecture in late October.
Advancers far outpaced decliners 1,052 to 416, with 125 issues remaining unchanged. Trading was very active in Tokyo, with 1,613.23 million shares changing hands, up sharply from yesterday's volume of 1,397.30 million shares.
The TSE's Second Section index gained 5.52 points, or 0.19 percent, to 2,920.62 on a volume of 50.57 million shares.
In Osaka, the near-term March Nikkei 225 index futures contract was up 100 points to 11,240.
The 10 Year JGB rallied for the third straight day as traders bought bonds on speculation that pension funds will be rebalancing their portfolios to match the changes in Nomura's bond index. The index is used by pension funds to benchmark the performance of their portfolios. The 10 Year JGB futures contract for March delivery rose 0.03 to finish the day at 139.11.