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* 20,000 milestone looms for both Nikkei and Dow
* Japan govt raises economic view, underpinning sentiment
TOKYO, Dec 21 (Reuters) - Japan's Nikkei share average edged up to a one-year peak on Wednesday in thin trading ahead of the holidays, tracking U.S. shares higher on expectations that U.S. President-elect Donald Trump's policies will stoke growth and inflation.
The Nikkei ended morning trade 0.2 percent higher at 19,522.80. In the previous session, it finished at its highest closing level since early December 2015, and was poised to set another milestone.
"Buying of names boosted by yen weakness is enough to overcome profit-taking by sellers, leading to a positive rise in the Nikkei," said Hiroki Allen, chief representative of Superfund Japan in Tokyo.
The dollar was slightly weaker on the day but remained close to a 10-1/2-month high of 118.66 touched on Dec 15.
In addition to getting a tailwind from a recently weaker yen, Japanese shares have also tracked U.S. shares, which have surged on expectations that the incoming administration of President-elect Trump will boost fiscal spending, growth and inflation.
"Volumes are low, so if you have a direction for a momentum trade like we have, it just pushes it more," said Gavin Parry, managing director of Parry International Trading in Hong Kong.
"But as we get closer to the 20,000 level, we tend to hit lulls," he said, noting key nearby psychological levels for both the Nikkei as well as the Dow Jones industrial average. The latter ended just 25 points shy of it on Tuesday.
Underpinning sentiment, Japan's government upgraded its overall assessment of the economy on Wednesday, hiking its view of household spending, exports and business sentiment, saying consumers' mindsets are improving and exports to Asia are recovering.
"The economy is on a moderate recovery, while delays in improvement can be seen in some parts," the Cabinet Office said in its monthly economic report, marking the first upgrade since March 2015.
On Tuesday, the Bank of Japan concluded its two-day meeting and kept monetary policy steady, and also issued a more positive view of the economy.
The BOJ's assessment came after the U.S. Federal Reserve raised rates for the first time in a year last week, and hinted further hikes could come at a faster pace than the market had expected.
On Wednesday, shares of precision motor maker Nidec Corp added 1.8 percent, after the company said it would expand its plan to repurchase its own shares to 5 million shares from 3 million.
The broader Topix was flat at 1,552.35, while the JPX-Nikkei Index 400 edged up slightly to 13,917.58.
Reporting by Tokyo markets team; Editing by Jacqueline Wong