Japanese stocks bounced slightly in another volatile session on Wednesday morning, but the sentiment remained fragile despite aggressive policy easings by Beijing as a collapse in Chinese stocks threatened to wreak havoc on a stumbling economy.
The Nikkei was up 0.4 per cent to 17,877.55 in mid-morning trade after moving in and out of negative territory in early trade.
The benchmark fell 13.6 per cent or 2,813 points, in the six sessions through Tuesday, and a move below 17,450 levels would wipe out all of its gains made this year.
On Tuesday, the People's Bank of China had cut interest rates and lowered the amount of reserves banks must hold for the second time in two months, ratcheting up support for a stumbling economy and a plunging stock market.
Beijing's easing steps failed to stem the rout in Chinese shares, which were down sharply on Wednesday morning after several brief forays into positive territory.
In Japan, the Chinese easings allowed investors to pick up stocks on the cheap, some traders say.
"There is a sense of relief for now, and stocks with attractive valuations and higher dividend yields are in focus," said Nobuhiko Kuramochi, a strategist at Mizuho Securities.
He said stocks such as mega banks were targets for bargain hunters. Mizuho Financial Group gained 1.5 per cent and Sumitomo Mitsui Financial Group rose 1.4 percent. The banks have dividend yields of 3.2 per cent and 3.3 per cent, respectively, while the Nikkei's dividend yields stand at 1.5 per cent.
Exporters were also chased higher, with Toyota Motor Corp rising 2.3 percent, Nissan Motor Co gaining 1.7 per cent and Panasonic Corp soaring 3.5 per cent.
Traders said that the overall short-term outlook for the market depended on how Chinese equities perform in coming days.
"You need to be careful of big futures players' positions as their strategy could sway the market sharply," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Those global macro investors are the 'trend setters' in the market. If they start selling Topix futures, it's not a good sign," Fujito said. "Their selling would be so influential that it could easily offset buying by pension funds and retail investors who like to buy stocks when prices are falling."
The broader Topix rose 1.6 per cent to 1,454.80 and the JPX-Nikkei Index 400 added 1.3 per cent to 13,080.53.