The Japanese stock market was trading higher on Friday following the positive cues overnight from Wall Street as investors remained optimistic about the U.S. economic outlook. Additionally, exporters are advancing on the back of a weaker yen, while property stocks are rising following media reports that Japan might start a fund to buy properties from REITs.

In early morning trades, the benchmark Nikkei 225 Index was advancing 81.38 points or 0.94% to 8,717.71 and the broader Topix Index of all First Section Issues was adding 7.80 points or 0.94% to 834.61.

U.S. stocks extended gains Thursday as investors were encouraged by better-than-expected earnings from big consumer brands and strong demand for government debt at the Treasury Department's auction of $24 billion worth of seven-year notes that helped to ease some of the recent concerns about the government's ability to fund its economic stimulus programs.

Crude oil surged again on Thursday and recovered its losses from the previous session. The rally took prices to their highest level in more than 2 1/2 months. Light sweet crude for May delivery closed at $54.34 per barrel on the New York Mercantile Exchange, up $1.57 on the session.

The Japanese market closed higher on Thursday on speculation that concerted efforts initiated by the central banks as well as governments will succeed in pulling out the global economy out of recession sooner than expected. The benchmark Nikkei 225 Index rose 156.34 points or 1.84% to close at 8,636.33, and the broader Topix Index of all the First Section issues gained 8.32 points or 1% to settle at 826.81.

On the economic front on Friday, Consumer prices in Japan posted little or no change for the year to February. The government reported that the core consumer price index was unchanged in February from one year earlier, while the overall CPI was down 0.1% on year. The data showed overall inflation was down 0.3% compared to one month earlier.

Core consumer prices in the Tokyo metropolitan region was up 0.4% in March following a 0.6% increase in February. Tokyo's overall CPI was up 0.3% on year. Tokyo data is considered a leading indicator of the nationwide trends.

Meanwhile, retail sales in Japan plummeted by 5.8% in February when compared to a year earlier, according to government data. The decline was the sharpest in 7 years and the 5th straight month of lower retail sales. The government noted that the on-year decline is partly attributable to the leap year adding an extra business day to last year's calendar. Sales by large-scale retailers were down 8.2% following an upwardly revised decline of 5.5% in January.

In the currency market, the U.S. dollar was trading in the lower 98 yen-range on Friday after the yen was sold for the dollar overnight in New York due to rising U.S. equities, which reduced the need to buy the Japanese currency to hedge risks. In early morning trades, the dollar was quoted in a range of 98.39-98.42 yen, up 0.30 yen from Thursday's close of 98.09-98.12 yen in Tokyo.

Banking stocks are trading higher. Mitsubishi UFJ, Japan's biggest bank, is gaining 1.67%. Mitsubishi UFJ Financial Group and Morgan Stanley said they would merge their Japanese brokerage units by the end of March 2010. MUFG is slated to get a 60% stake in the new brokerage, with Morgan Stanley taking 40%.

Meanwhile, Sumitomo Mitsui is adding 1.26% and Resona Holdings is edging down 0.07%. Shares of Mizuho Financial are up 0.43%. The company plans to reduce its shareholdings by about 20% next business year to lessen its exposure to stock market fluctuations, according to media reports. Brokerage Nomura Holdings is advancing 1.26%.

Exporters are trading higher on the back of a weaker yen. Canon is rising 3.88% and Sony is adding 0.22%. Among automakers, Toyota is gaining 2.48% and Honda is advancing 2.32%. Honda said Thursday that an assembly plant under construction in Japan will not come onstream until 2012 or later. The factory was originally slated to open in 2010, but was delayed by more than one year to 2011 or later.

Oil-related stocks are trading higher after crude oil price surged overnight. Inpex is adding 1.12%, Nippon Oil is rising 2.08% and Showa Shell is gaining 2.08%. Meanwhile, trading house Mitsubishi Corp. is up 3.28% and Sumitomo Corp. is adding 0.43%. Itochu is unchanged.

Property firms are gaining following media reports that Japan's ruling coalition is considering plans to set up an investment fund of 1 trillion yen that will use money raised from the public and private sectors to buy properties held by real estate investment trusts and make loans to REITs. Mitsui Fudosan is up 4.80% and Mitsubishi Estate is gaining 2.12%.

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