TOKYO, Jan 11 Japan's Nikkei share average is set to test a 23-month high on Friday, with exporters likely to extend gains after the yen hit a 2-1/2 year low on hopes that the central bank will ease monetary policy aggressively. The Nikkei was likely to trade between 10,600 and 10,850 on Friday, strategists said, after rising 0.7 percent to 10,652.64 on the previous day. If the index trades above 10,800, it will be the first time since February 2011. Nikkei futures in Chicago closed at 10,775, up from the close in Osaka of 10,660. "Investors are already aware that the market is overheated. But even with such caution, they are ready to add more Japanese shares to their portfolios," said Yutaka Miura, a senior technical analyst at Mizuho Securities. But he added that buying could stall if the yen weakens sharply in a short-period of time, such as hitting 90 yen to the dollar on the day. The dollar last traded at 88.90 yen, its highest since June 2010. "A weak yen is generally positive for Japanese exporters, but a steep drop from the current level may make them cautious," Miura said, adding that investors may also be wary of taking a large bet before a three-day weekend. Markets will be closed on Monday in Japan for a public holiday. Traders said that sentiment was also boosted after the Nikkei business daily reported Prime Minister Shinzo Abe as saying in an interview that the Bank of Japan should make pursuing maximum employment a consideration. Thursday's gains took the Nikkei deep into "overbought" territory. Its 14-day relative strength index stood at 75.83, above the 70-mark which is deemed overbought and often indicates the market is ripe for a correction in the near term. On Thursday, the broader Topix index gained 1.1 percent to 889.02 in active trade, with 4.17 billion shares changing hands, the largest volume since March 2011. "Even if profit-taking hits the market before the BOJ's policy meeting (scheduled on Jan 21-22), the impact should be limited as long as the market can keep up with high volume," said Hiroichi Nishi, assistant general manager of equity research at SMBC Nikko Securities. The yen has been weakening since Abe called on the Bank of Japan in mid-November to adopt a bolder policy to revitalise the economy, including setting an inflation target of 2 percent. The Nikkei has since rallied 23 percent. > Wall St climbs as China data puts S&P back at 5-yr high > Dollar extends gains vs yen, hits 2-1/2-year high > Prices fall on ECB talk, but debt sale tempers losses > Gold tops $1,675 on ECB comments; PGMs up on China > -Oil rises after Saudi Arabia cuts output STOCKS TO WATCH --Komatsu Ltd Komatsu will reduce its construction machinery offerings by around 20 percent by fiscal 2015 to focus on developing next-generation products, the Nikkei said. --Honda Motor Co Honda said on Thursday it will invest $23 million to build a hybrid version of its popular Accord sedan at its plant in Marysville, Ohio. -- Fast Retailing Co Fast Retailing raised its annual profit forecast to a record after sales rose at home outlets of the Japanese retailer's flagship Uniqlo casual clothing chain and price cuts and chilly autumn weather spurred a quarterly profit jump.
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