* Nikkei up 0.5 pct, Topix up 0.7 pct * Weak yen pushes up exporters * Reflationary stocks also gain on new government hope By Ayai Tomisawa TOKYO, Dec 26 Japan's Nikkei share average edged higher on Wednesday as the yen slipped to a 20-month low, on expectations of an aggressive monetary easing stance by the new government, lifting exporters on hopes of better-than-expected earnings. The dollar last traded at 85.35 yen, the dollar's highest level since April 2011 on expectations that incoming Japanese Prime Minister Shinzo Abe would push the central bank into more forceful monetary easing. Abe is set to be selected as prime minister by lawmakers on Wednesday after leading his Liberal Democratic Party to a landslide victory in a lower house election this month. The Nikkei gained 0.5 percent to 10,132.55. Market players said despite signs that Japanese stocks were overbought, buying had continued, but due to the Christmas holiday doldrums, volume was likely to stay thin. "Most foreign funds have added Japanese shares and there are fewer participants today, but there still is a reason for the Nikkei to rise," said Hideyuki Okoshi, general manager at Chibagin Securities. "Not only exporters but investors are buying other stocks which could benefit under the new government." Exporters were in demand, with Toyota Motor Corp adding 1.6 percent, Honda Motor Co gaining 1.3 percent and Sony Corp rising 2.5 percent. A weak yen boosts exporters' overseas earnings when repatriated. Real estate shares and financials were also lifting the market on Abe's reflationary policy, with Mitsui Fudosan Co rising 0.8 percent, Mitsubishi UFJ Financial Group adding 1.1 percent and Sumitomo Mitsui Financial Group advancing 0.7 percent. After rising 17 percent over the last six weeks, the Nikkei is in "overbought" territory, with its 14-day relative strength index at 73.94, above 70 which is deemed the overbought threshold and signalling that a correction may be imminent. The broader Topix added 0.7 percent to 843.90.