TOKYO -- Japan's Nikkei Stock Average on Monday hit a fresh 27-year high as a weaker yen and an agreement by the U.S. and Canada to revise the North American Free Trade Agreement renewed optimism for earnings growth.
The benchmark stock index closed 0.5% higher to end at 24,245.76 -- its highest finish since November 1991.
Gains were boosted by a decline in the yen, which was trading at an 11-month low against the U.S. dollar. Analysts have pointed to rising U.S. interest rates -- on the back of improving economic conditions in the U.S. -- as a reason for the greenback's rally.
A business confidence survey released on Monday by the Bank of Japan shows confidence among Japan's large manufacturers weakening for the third straight quarter, reflecting concerns over the U.S.-China trade war.
But the weak yen raised investor expectations that exporters will lift their earnings projections. The stock price of trading house Itochu, which raised its profit forecast for the fiscal year through March 2019, ended the day 7% higher.
Meanwhile the U.S. and Canada forged a deal to revise Nafta. The announcement eased concerns, leading to gains in European stocks and U.S. equity futures, and lifting overall stock market sentiment.
Some market watchers believe that, amid the optimism, Japanese institutional investors like life insurers and trust banks are beginning to buy Japanese stocks after a long period of caution regarding the movement of the Nikkei average.
"The Nikkei average has been lifted by forward buying of foreign investors," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. "But Japanese institutional investors are finally beginning to feel comfortable as the Nikkei index has remained stable at 24,000 yen or so."
"Japanese institutional investors appear to have placed buying orders for high-yield cash stocks, among others," said Yasuhiko Kuramochi, general manager of the investment information department at Mizuho Securities.
Some concerns remain, however. The Tokyo Stock Price Index rose only 0.04% on Monday, and the transport equipment index was 0.80% lower than Friday, despite the new NAFTA deal.
New incentives will be necessary for the Nikkei average to climb further, such as the development of Japan-U.S. trade talks and upward revisions of earnings forecasts.