According to a report from the Wall Street Journal,encouraging U.S. economic data released overnight, including surprisingly strong weekly jobs figures, were key to the dollar's ascent through the ¥102 mark—its highest level since Japan stocks' prior peak in May.
A stronger dollar benefits exporters by making their goods cheaper to buy overseas and fattening profits converted back into yen.
The Nikkei ended up 1.8% at 15,727.12, almost 100 points ahead of its last high set on May 22.
"This move is a technical breakthrough, but may yet serve as a buy signal for investors—especially overseas buyers who feel left behind—and help to spark a bull run right through the calendar year-end," said Kenichi Hirano, a market analyst at Tachibana Securities.
For that to happen, however, more yen weakening is likely to be necessary, many traders say. The Japanese currency has lost about 3% against the dollar in the last two weeks.
The flip-side of yen selling is buying stock futures, a strategy employed by big players in the Japanese derivatives market.
"Hedge-fund accounts are buying Nikkei futures as they short the yen—as they have been doing for most of the past few weeks—making today's rally mostly derivative-based," says Investrust CEO Hiroyuki Fukunaga.
"Behind the numbers, the reality is that cash-market participation rates weren't very good, meaning that today's rally cannot be called a 'high quality' run-up. When traders return from the U.S. Thanksgiving holiday next week, we'll get a better idea if this surge has legs," Mr. Fukunaga said.
More stock-friendly currency levels have whetted foreigners' appetite for Japanese shares in recent weeks. A weaker yen was behind about ¥2 trillion (about $19.6 billion) of net stock purchases from Nov. 10 to Nov. 23—the most robust two weeks of buying by overseas residents since mid-April.
