Japanese stocks rose to their highest level in more than six years Tuesday, led by real estate and steel issues, as the market was cheered by economic data that suggested Japan's central bank may hold off further on raising interest rates.
Many global speculators are sitting on high-risk bets that the Bank of Japan will stay on hold with rates: Tighter credit could wreak havoc with the popular strategy of borrowing in Japan to invest elsewhere.
On the Tokyo Stock Exchange, the benchmark Nikkei 225 index gained 117.12 points, or 0.7%, to 17,621.45, the best finish since May 10, 2000.
The broader Topix index, which includes all shares on the exchange's first section, was up 10.81 points, or 0.6%, to 1,755.90, a nine-month high.
But the weak yen -- increasingly controversial with some of Japan's trading partners -- has cut into those returns for foreign investors in Japanese stocks. For example, the Nikkei is up 2.3% in yen year to date, but it's up just 0.5% in dollars.
Sentiment in the stock market Tuesday was buoyed by Japanese corporate goods price data that showed prices rose in January at their slowest pace since November 2005.
The data suggested Japan doesn't face any immediate threat of inflation that could pressure the Bank of Japan to raise interest rates further. Policymakers made two credit-tightening moves in 2006, including raising their short-term rate from zero to 0.25% in July.
Despite Japan's still-rock-bottom rates, some business leaders fear that tighter credit could stifle the nation's economic recovery.
Fresh data on the economy will be reported Thursday, when the government estimates fourth-quarter gross domestic product growth.
Japan's economy expanded at an annualized 3.8% rate in the quarter, according to the median estimate in a Bloomberg survey of 38 economists. Growth was 0.8% in the third quarter.
Japanese exporters have benefited from continued weakness in the yen, which is at its lowest level against the dollar in more than four years. The yen was at 121.18 per dollar Tuesday in New York. It has fallen from 102 per dollar two years ago.
The yen has been weakened in part by the so-called carry trade: Speculators worldwide have been heavily borrowing in yen at Japan's low interest rates, then investing the proceeds in higher-yielding assets in the U.S., Europe and emerging markets rather than in Japan.
