Japanese shares rose, with the Nikkei 225 Stock Average capping its biggest yearly gain in four decades, as the yen retreated past 105 per dollar to its weakest in more than five years.

 Nikon Corp., a camera maker that gets about 85 percent of sales overseas, added 1.3 percent. Nippon Sheet Glass Co. jumped the most on the Nikkei 225 after Daiwa Securities Group Inc. rated the shares new outperform. Maruha Nichiro Holdings Inc. dropped 2.7 percent after a report it will recall frozen food such as pizza after pesticide was found in the products. Nippon Paper Industries Co. tumbled 5.9 percent on a report its operating profit probably dropped.

 The Nikkei 225 added 0.7 percent to 16,291.31 at the close of trading in Tokyo, closing the year 57 percent higher, the largest such increase since a 92 percent surge in 1972. The Topix index gained 1 percent to 1,302.29, with all but three of 33 industry groups rising. The yen weakened 0.2 percent to 105.34 per dollar, its lowest since Oct. 6, 2008.

David Fuller's view

FT Money has been very bullish of Japan’s stock market since we first heard of Shinzo Abe’s reflationary plans in December 2012.  The only additional proviso, often mentioned earlier this year, was to hedge short the yen for maximum performance, shown here as USD/JPY.  

This is still advisable although it will become less necessary as 2014 progresses. Also, we can expect a short to medium-term reaction shortly after the current progression of nine consecutive weeks to the upside by the US dollar is broken by a downward dynamic.   

 Earlier this month I was saying that a successful completion of Japan’s first step above the base medium-term consolidation might be delayed a little longer because the usually leading TSE2 Index (weekly & daily) was lagging.  This changed dramatically over Christmas week, as you can see from the surge on these charts, including a big upside weekly key.  This is probably in part a short squeeze but I would continue to give the upside the benefit of the doubt provided the progression of higher reaction lows since Early September is maintained.  The Nikkei 225 (weekly & daily) and Topix (weekly & daily) have confirmed TSE2.  Here also I would give the upside the benefit of the doubt while the recent progression of higher reaction lows is maintained.