Tokyo shares jumped 2.57% by the close Tuesday as the sagging yen supported the market while investors were also upbeat on a report that Japan may slash corporate taxes.
The benchmark Nikkei 225 index closed up 347.57 points to 13,867.00, while the Topix index of all first-section shares climbed 1.99%, or 22.53 points, to 1,157.15.
Trading on Japan's premier bourse was thin with many market players away for a national summer holiday.
"Until the (summer) holiday season finishes, market energy is going to stay somewhat lethargic," SMBC Nikko Securities general manager of equities Hiroichi Nishi told Dow Jones Newswires.
"Technically, stocks are in the 'buy zone' after recent falls below support levels," he added.
Investors bought back Tokyo stocks as the dollar and euro rose on the yen, which makes Japanese exporters more competitive overseas and tends to lift their shares.
Sentiment also got a boost after a report in the leading Nikkei business daily said Japanese Prime Minister Shinzo Abe was reviewing a possible corporate tax rate cut in a bid to stoke growth and offset the impact of a national sales tax hike.
Tokyo is mulling lifting Japan's consumption tax in a bid to bring down a debt pile that is the worst in the industrialised world at more than twice the size of the economy.
Weaker-than-expected GDP data for the second quarter on Monday had nervous investors speculate that Abe may hold off the tax rise.
On currency markets, the dollar strengthened to 97.46 yen from 96.90 yen in New York on Monday, while the euro also gained at 129.65 yen from 128.84 yen in U.S. trading.© (C) 2013 AFP