Japanese stocks rebounded sharply on Tuesday morning and moved away from a three-month low hit on the previous day after Wall Street rallied as tensions between the United States and North Korea eased. The Nikkei share average jumped 1.4 per cent to 19,817.30 in midmorning trade, after falling 1 per cent on the previous day to hit the lowest closing level since May 2.

US officials on Sunday played down the risk of an imminent war with North Korea. Those concerns had helped wipe out nearly $1 trillion from global equity markets last week. “Worries about a conflict between the United States and North Korea are not completely gone, but the market seems to be settled now,” said Masashi Oda, general manager at the strategic investment department at Sumitomo Mitsui Trust Asset Management.

He said the Nikkei will likely rise above 20,000 on the back of positive catalysts including brisk first-quarter earnings and full-year projections from Japanese companies as well as strong growth domestic product data.

According to Rakuten Securities, Japanese companies now expect a 10.5 per cent rise in their net profits for this fiscal year through March, compared to a 5.9 per cent increase forecast in May. Financial stocks, which underperformed on Monday, gained ground. Dai-ichi Life Holdings rose 2.1 per cent, while T&D Holdings and Mitsubishi UFJ Financial Group rose 2.3 per cent each.

Tracking strength in US technology shares, Japanese chip-related companies such as Advantest Corp and Tokyo Electron gained 2.1 per cent each. Automakers were also in demand, with Toyota Motor Corp rising 1.8 per cent, Nissan Motor Co adding 2 per cent and Subaru Corp climbing 1.6 per cent.

The value of the yen, which is a big driver of the market given the high number of exporter stocks, also underpinned trading. The dollar rose 0.5 per cent to 110.18 yen, pulling further away from a near four-month low of 108.72 yen set on Friday.

The broader Topix gained 1.3 per cent to 1,620.33.