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Nikkei Kicks Off New Year With Sharp Gains

Robust outlook for U.S. economy, yen weakness boost shares of Japanese exporters

Guests in kimonos participated in a ceremony Wednesday at the Tokyo Stock Exchange to mark the first trading session of the year.

Japan equities kicked off the new year sharply higher on Wednesday, amid a robust outlook for the U.S. economy and a positive signal for Japanese manufacturing, as well as expectations of continued yen weakness.

The Nikkei Stock Average was up 2.3%, helped by gains in financial and export-oriented stocks, as trading resumed after a four-day holiday weekend.

The Nikkei Japan Manufacturing Purchasing Managers’ Index, a key measure of manufacturing activity, rose to 52.4 in December from 51.3 in November, the highest reading since December 2015. A reading above 50 indicates expansion.

Among key outperforming shares, Shinsei Bank gained 4.1%, with Mitsubishi UFJ adding 3.9%. Honda Motor gained 4.3% and Mitsubishi Motors rose 3.9%.

Japanese air-bag maker Takata surged to its daily limit for a third-straight session, and was last up 17.5% on the possibility that it was nearing a settlement with U.S. prosecutors to resolve allegations of criminal wrongdoing. Hopes for an early settlement have sent the stock up 66% since last Wednesday’s close to reach a 14-month high today.

Many other Asian markets also tracked Japan’s gains, with Singapore’s Straits Times Index up 0.7%, and the FTSE Bursa Malaysia Index adding 0.4%. Australia’s S&P/ASX 200 was flat.

“Today was the first day of trade in Japan and market participants are reacting to the good news over the global economy,” said analyst Masashi Murata, who covers regional and emerging markets for Brown Brothers Harriman.

The outlook for the global economy is strong with inflation picking up in the U.S. and Europe, he said.

Overnight, the U.S. dollar rose to a 14-year high, boosted by positive data on factory activity. The Institute for Supply Management’s manufacturing index, released Tuesday, rose to its highest level in two years. The news pushed the WSJ Dollar Index up 0.3% to its highest level since mid-2002.

In Asian trade Wednesday, the index narrowed its gains and was last flat at 93.58. Still, the dollar strengthened 0.2% against the yen Wednesday to reach ¥117.98. A weaker yen makes Japanese exports more competitive.

The U.S. dollar has been gaining strength on the expectation that the U.S. Federal Reserve will raise interest rates more briskly this year to counter inflation from a strengthening economy, with President-elect Donald Trump widely expected to unveil a fiscal stimulus package.

“Trade is very much focused on the dollar, versus the yen and the euro,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “If the dollar is stronger then there is very much a risk-on trade.”

Despite the stronger dollar, which makes contracts priced in the currency more expensive, commodities stocks rallied on Wednesday. Australia’s Fortescue Metals gained 2.1% and BHP Billiton rose 0.5%.

Crude oil also recovered with prices for Brent crude, the international oil benchmark, rising 0.7% to $55.86 a barrel early Wednesday, after overnight declines.

Japan Petroleum Exploration gained 3.5% with oil firm Inpex adding 2%. Australia’s Oil Search added 1.1% as well. Hong Kong-listed shares of China Shenhua added 3.8% with Kunlun Energy gaining 1.6%.

In China, the Shanghai Composite Index was up 0.4% ahead of the release of the China Services Purchasing Managers’ Index. On Tuesday, a private gauge of manufacturing came in at the strongest level since early 2013.

Despite across the board buying in blue-chip stocks, Hong Kong’s Hang Seng Index was down 0.1% in the morning session on Wednesday.

Investors there are on the sidelines as they watch for any fallout from Mr. Trump’s policies, as well as capital outflow restrictions on Chinese nationals, said Hannah Li, a stock strategist at broker UOB Kay Hian.

—Hiroyuki Kachi, Megumi Fujikawa and Lucy Craymer contributed to this article.

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