Investors scooped up cyclical shares with cheap valuation including Yokohama Rubber and Sumitomo Metal, which gained 8.9 per cent and 7.2 per cent, respectively.
Travel-related shares also advanced as investors bet on a continued recovery in the global economy with COVID-19 vaccination programmes gathering pace across the world.
Airliner ANA Holdings notched up 5.8 per cent, while rival Japan Airlines added 5.7 per cent. Department store operators also bounced back, with J.Front Retailing up 2.4 per cent and Takashimaya trading 1.6 per cent higher.
Chip-related shares continued to do well, with Tokyo Electron gaining 6.3 per cent.
Rise in U.S. bond yields also lifted Japanese financials, which are considered to benefit from higher interest income, with banks up 1.8 per cent and insurers adding 0.8 per cent.
“But one thing that warrants caution is a rise in real U.S. interest rates. The market is strong today but I believe people are nervous at the same time,” said Hiroshi Watanabe, senior economist at Sony Financial Holdings.
Such concerns make Federal Reserve Chair Jerome Powell’s Congressional testimony on Tuesday all the more important, Watanabe added, as U.S. real bond yields have risen almost 30 basis points in just over a week.
The Bank of Japan refrained from buying exchange traded funds (ETFs) over the past two sessions, when the Topix fell more than 0.5 per cent in morning trade, a criteria that would have prompted the central bank’s buying in the past.
Yet the market shrugged it off as investors have been expecting the BOJ to curtail its buying as the market has risen to a three-decade high.