Japan's Nikkei index jumped to a near 26-year-high on Tuesday, as foreign investors piled in on expectations of strong earnings from Japan Inc., while Wall Street's strength provided extra impetus.
The Nikkei share average opened lower but later soared and closed 1.7% higher at 22,937.60, the highest closing level since January 1992.
Commenting on the rise Takashi Ito, equity market strategist at Nomura Securities, said: "We tend to compare the current market's strength with that of 1992. But the current rally in Japanese stocks is fuelled by real profits and that's different from 26 years ago when companies struggled to be profitable after the real estate bubble burst."
Ito also pointed out that Japanese stocks are currently trading at 14-times their projected earnings, compared with a much more aggressive valuation of 37.73-times their projected earnings in 1992.
Nomura analysts in September had expected that Japanese firms would report a 16.3% rise in their pre-tax profits for the year ending March 2018. Those projections have now been lifted to a 17%rise."The longer we wait, the higher profits we can expect," Ito said.
Also helping the rally was strength in Wall Street.
"U.S. stocks are supported by strong fundamentals, which are also lifting foreign investors' risk appetite," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Foreign investors who were underweight on Japanese stocks in the summer are raising their investment stances to neutral and even overweight for a few reasons."
He said that foreign investors are attracted to Japanese companies' strong earnings prospects and Japan's political stability, which he describes as rare at present among developed
Japan's Shinzo Abe was re-elected prime minister last week after his Liberal Democratic Party-led coalition retained its two-thirds "super majority" in the parliament's lower house.
According to Japan Exchange Group, foreign investors have bought a total of about 4.4 trillion yen ($39bn) in Japanese stocks and futures over the past six weeks.
Traders said factory automation equipment makers such as Fanuc Corp and Keyence Corp have been snapped up on expectations of strong earnings, soaring 3.1% and 4%, respectively.
Inpex Corp surged 3.7% and Japan Petroleum Exploration Co jumped 6% as oil prices held on to gains after hitting the highest since early July 2015 on Monday.
Realtor Mitsubishi Estate Co jumped 3.9% after the company raised its net profit outlook for the fiscal year ending March 2018, thanks to strong building management business. It lifted other realtor stocks, with Mitsui Fudosan gaining 2.2%.
Listed brokerage firms also gained, with Nomura Holdings surging 3.6% and Daiwa Securities rising 1.8%.