By Ayai Tomisawa
TOKYO (Reuters) - Japan's Nikkei share average edged up on Thursday, posting its best January in 15 years as gains in the banking sector lifted sentiment, offsetting gloomy earnings from such bellwether companies like Nintendo Co <7974.OS>.
The Nikkei ended up 0.2 percent at a new 33-month high of 11,138.66 points and posted a 7.2 percent gain this month, its strongest January performance since 1998 after rallying 22.9 percent in 2012.
Analysts said that global cyclical companies such as exporters may continue to disappoint the market with gloomy earnings for the Oct-Dec period. They also said they do not have overly high expectations most exporters would immediately gain from the recently weak yen and raise their full-year forecasts.
In the meantime, stocks that could benefit from Japan Prime Minister Shinzo Abe's reflationary policies will likely be in demand, analysts added.
"Domestic-sensitive shares are playing catch-up with exporters which have enjoyed sharp gains," said Kyoya Okazawa, head of global equities at BNP Paribas. "When investors are hopeful that the rally will be a long-term one, their focus will shift to domestic-sensitive shares from global cyclical stocks."
Banks were notable gainers on Thursday, with Sumitomo Mitsui Financial Group <8316.T> climbing 5.2 percent after its ninth-month earnings handily beat its operating profit forecast for the full-year ending March.
"Securities and banking stocks lent support to Topix. SMFG's positive earnings results have encouraged investors to buy banking stocks. Expectation for earnings of major brokerages, such as Nomura and Daiwa, are also high," said Masayuki Otani, chief market analyst at Securities Japan.
Rivals Mitsubishi UFJ Financial Group <8306.T> and Mizuho Financial Group <8411.T> rose 3.6 percent and 2.8 percent, respectively.
Nomura Holdings <8604.T> Japan's top brokerage, added 2.1 percent ahead of its results. Japan's largest investment bank posted a 12.8 percent rise in quarterly profit on Thursday after the closing bell, helped by the recent rally in Japanese shares, cost-cutting, and a large one-off investment gain.
The broader Topix gained 0.6 percent to 940.25 in active trade, with 3.75 billion shares changing hands, higher than last week's average daily trading volume of 3.44 billion shares.
Despite the weaker yen, companies have so far reported lacklustre earnings for the October-December quarter. Of the 26 Nikkei companies that have announced quarterly results so far, nearly two-thirds have missed market expectations, according to Thomson Reuters StarMine. That compared with 56 percent in the previous three months.
An operating loss warning from video game maker Nintendo Co Ltd <7974.OS> caused its shares to drop 4.6 percent while chip-making equipment maker Advantest Corp <6857.T> shed 1.8 percent after it cut its full-year operating profit forecast.
Nintendo said it would post an operating loss for a second straight year as sales of the Wii U, the successor to its Wii console, faltered.
"Nintendo's results were disappointing," said Fujio Ando, an analyst at Chibagin Securities. "With the yen weakening sharply, the market had been expecting that the value of the company's foreign assets would be raised."
The softer yen, which is expected to boost exporters' earnings, has lifted the appeal of Japanese equities, with foreign investors remaining net buyers last week for an 11th consecutive week. They bought a net 248.6 billion yen worth of equities in the week through January 26, data from the Ministry of Finance showed.
But analysts said that poor earnings and conservative full-year forecasts could put a pause on the rally in the short-term as recent gains in the Japanese market have made valuations slightly more expensive than their U.S. peers.
The Topix carries a 12-month forward price-to-earnings ratio of 13.4, versus the U.S. S&P 500's 13.3 and the pan-European STOXX Europe 60's 11.9, data from Thomson Reuters Datastream showed.
(Additional reporting by Tomo Uetake; Editing by Jacqueline Wong)