Japanese stocks edged up on Thursday morning, as tech shares were cheered by strength in their US peers though a slightly higher yen kept overall market gains in check.
The Nikkei rose 0.2 per cent to 20,132.56 in midmorning trade.
The benchmark index held to a tight range with limited upside as the dollar weakened against the yen after congressional testimony by Federal Reserve Chair Janet Yellen was seen as less hawkish than some traders had anticipated.
“When market's volatility is low, investors look to small-to-mid cap stocks after giving up chasing large cap stocks higher,” said Yoshihiro Okumura, general manager at Chibagin Asset Management.
He said with global interest rates moving higher, foreign investors have remained cautious.
Bank of Canada hikes interest rates
On Wednesday, the Bank of Canada had raised interest rates for the first time in nearly seven years, reinforcing signs of a move by major global central banks - including those in Europe - to a less stimulatory stance.
Some small cap shares outperformed, with Infoteria Corp surging 4.4 per cent, Mixi Inc adding 0.5 per cent, while digital advertising firm SoldOut Inc , which debuted on Wednesday on the Tokyo Mother's market, jumped 17 per cent.
The dollar was 0.1 per cent lower at 113.07 yen after losing about 0.7 per cent overnight, when it was pulled back from a four-month high near 114.495 scaled earlier in the week on expectations of US-Japan monetary policy divergence.
Yellen's testimony
Yellen said at her semiannual appearance before Congress that the US economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio, though low inflation may leave the central bank with diminished leeway.
Banks lost ground after U.S. yields fell. Mitsubishi UFJ Financial Group shed 0.9 per cent, Mizuho Financial Group declined 0.7 per cent, insurer Dai-ichi Life Holdings dropped 2.0 per cent.
Technology shares attracted buying, with Tokyo Electron Ltd rising 2.1 per cent and Hitachi Ltd adding 0.9 per cent.
The broader Topix dropped 0.2 per cent to 1,621.93.