* Nikkei up 2.8 pct, Topix up 3.3 pct
* Volume high: 3.41 billion shares change hands
* 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
climbed 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 the weaker yen lifted exporters such as Toyota
The Nikkei ended up 2.8 percent at 10,688.11, its
highest close since March 4, 2011. It was also the Nikkei's
biggest daily percentage gain since March 22, 2011.
Volume was high, with 3.41 billion shares changing hands on
the board, compared with 2.85 billion shares traded in the final
business week of 2012.
Exporters were in demand, with Toyota adding 6.4 percent,
Honda Motor Co advancing 4.0 percent and Canon Inc
gaining 2.4 percent.
"It's a relief that the U.S. fiscal cliff was averted," said
Hiroichi Nishi, general manager at SMBC Nikko Securities, noting
that the market was cheering positive developments that
happened while Japanese markets were closed for the New Year
holidays this week.
"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 87.83 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 83.28, 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 9,765.15.
Analysts said investors are keeping an eye on the U.S.
non-farm payrolls report due out later Friday. It is expected to
show the economy added 150,000 jobs in December, according to a
Reuters survey of economists, up from 146,000 in November.
"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."
Meanwhile, Sharp Corp fell 2.6 percent to 295 yen
after the Yomiuri newspaper reported on Jan. 1 that it is
considering raising more than 100 billion yen ($1.2 billion)
this spring to bolster its capital base.
The broader Topix gained 3.3 percent to 888.51.