* Nikkei up 2.6 pct, Topix up 2.8 pct
* Car, electronic makers may outperform among manufacturers
* Exporters gain on better earnings expectations - analyst
* Market deeper into 'overbought' territory
By Ayai Tomisawa
TOKYO, Jan 4 Japan's Nikkei share average rose
to a 22-month high on its first trading day of 2013 as a deal in
Washington to avert the "fiscal cliff" buoyed investor risk
appetite and a weaker yen lifted exporters like Toyota Motor
By the midday break, the Nikkei was up 2.6 percent
at 10,666.10 after hitting 10,734.23, its highest intraday level
since March 2011.
Exporters were in demand, with Toyota adding 4.7 percent,
Honda Motor Co advancing 4.1 percent and Canon Inc
gaining 2.5 percent.
"It's a relief that the U.S. fiscal cliff was averted," said
Hiroichi Nishi, general manager at SMBC Nikko Securities, adding
that the market is cheering positive developments that happened
while Japanese markets were closed for the New Year holidays.
"Exporters should benefit from a weaker yen on expectations
that they will have strong forecasts for the next fiscal year."
On Wednesday, President Barack Obama signed "fiscal cliff"
legislation that raises tax rates for top earners and extends
tax cuts for the middle class.
The yen traded at 87.78 yen to the dollar on Friday morning,
its weakest since July 2010. A weaker yen inflates exporters'
overseas earnings when repatriated.
Yasuo Sakuma, chief executive of Bayview Asset Management,
said carmakers and consumer electronics such as Nikon Corp
and Canon would attract strong buying on the back of
the weaker yen.
"Among exporters, consumer products may outperform compared
with, say, machinery makers," Sakuma said. "Investors prefer
them to manufacturers like semiconductor manufacturing
equipment, whose customers are companies that are still saving
on capital spending."
Japanese shares gained 23 percent last year, their best
yearly gain since 2005, after rising expectations of aggressive
monetary stimulus under new Prime Minister Shinzo Abe weakened
the yen and bolstered exporters.
Analysts said the Nikkei would probably stay strong for the
time being. But they also warned that with some technical charts
signalling overbought levels, profit-taking could hit anytime.
"Investors' risk appetites have come back. Investors are
chasing the market higher for the sake of chasing the market
higher," said Yoshiyuki Kondo, a strategist at Daiwa Securities.
"It's like the chicken game. They are thinking about the
risk of losing if they don't keep buying, but you don't know
what could trigger a pullback."
The Nikkei has risen about 23 percent since mid-November
when Abe started calling for aggressive easing, taking the
Nikkei deeper into "overbought" territory.
Its 14-day relative strength index is at 83.02, far above 70
which is considered overbought and often indicates an imminent
The index is also trading nearly 10 percent above its 25-day
moving average of 9,764.27.
Analysts said investors are keeping an eye on the U.S.
non-farm payrolls report due out later Friday. The data is
expected to show the economy added 150,000 jobs in December,
according to a Reuters survey of economists, up from 146,000 in
"Right now, market players are expecting a positive outcome,
but if it disappoints the market, we may see a big drop," said
Kondo of Daiwa Securities.
"The market is so overheated that it could slide, even
temporarily, and anything could be a trigger."
The broader Topix gained 2.8 percent to 884.08.