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By Ayai Tomisawa
TOKYO (Reuters) - Japan's Nikkei share average rose on Wednesday as the yen slipped to a 20-month low on expectations of an aggressive monetary easing stance by the new government, lifting exporters on hopes of better-than-expected earnings.
The yen last traded at 85.38 to the dollar, its weakest level since April 2011 on expectations that incoming Japanese Prime Minister Shinzo Abe would push the central bank into more forceful monetary easing. Abe is set to be selected as prime minister by lawmakers on Wednesday after leading his Liberal Democratic Party to a landslide victory in a lower house election this month.
The Nikkei gained 0.4 percent to 10,122.82 by the midday break.
Buying continued despite signs that Japanese stocks were overbought, but trading volume was likely to stay thin due to the Christmas holiday, market players said.
"Most foreign funds have added Japanese shares and there are fewer participants today, but there still is a reason for the Nikkei to rise," said Hideyuki Okoshi, general manager at Chibagin Securities. "Not only exporters but investors are buying other stocks which could benefit under the new government."
Among exporters, Nissan Motor Co <7201.T> added 1.2 percent and Sony Corp <6758.T> rose 2.8 percent. A weaker yen boosts exporters' overseas earnings when repatriated.
Real estate shares and financials were also lifting the market on Abe's reflationary policy, with Mitsui Fudosan Co <8801.T> rising 0.6 percent, Mitsubishi UFJ Financial Group <8306.T> adding 0.7 percent and Mizuho Financial Group <8411.T> advancing 0.7 percent.
After rising about 17 percent over the last six weeks, the Nikkei is in "overbought" territory, with its 14-day relative strength index at 73.68, above 70 which is deemed the overbought threshold and signalling that a correction may be imminent.
The broader Topix added 0.5 percent to 842.21 in thin trade, with 1.38 billion shares changing hands by the midday break. That compared with last week's daily average volume of 3.53 billion shares.
(Editing by Chris Gallagher)