Tokyo stocks have risen 0.83 per cent as late bargain-hunting wiped out early losses after Wall Street turned down in concerns over the crisis in Iraq.
The benchmark Nikkei 225 index rose 124.31 points on Friday to finish at 15,097.84, while the Topix index of all first-section shares gained 0.50 per cent, or 6.22 points, to 1,243.97.
Shares turned down at the start of the day, tracking a sell-off on Wall Street as growing unrest in Iraq spooked investors and pushed up the yen against the dollar, denting some exporters.
But investors bid up the market in late trading as the yen weakened, sending the index into positive territory.
"Today's recovery came even after declines on Wall Street - that shows Japanese stocks are on a steady rising path," said Kenzaburo Suwa, a strategist with Okasan Securities.
During the break, the Bank of Japan announced it would hold off expanding its stimulus program and said the economy was recovering, despite fears a sales tax rise will dent growth.
Also on Friday, Japanese officials and media reports said the country will slash one of the world's highest corporate tax rates as part of a wider bid to shake up the economy and drive growth.
There were few immediate details, but reports said corporate taxes - which vary across the country - would be cut to below 30 per cent within several years, as Tokyo reduces the national rate to push down regional rates in turn.
In currency markets, the US dollar bought Y101.96, up from Y101.68 in New York but still down from Y102.08 earlier Thursday in Asia.
Jihadists swept towards Baghdad Thursday as President Barack Obama said he was exploring all options to save Iraq's security forces from collapse and US companies evacuated hundreds from a major air base.
With the militants closing in on the capital, forces from Iraq's autonomous Kurdish region took control of Kirkuk, an ethnically divided northern city they have sought to rule for decades against the objections of successive governments in Baghdad.
The unrest helped spark a sell-off in riskier assets, including the US dollar.
In share trading, Mitsubishi Heavy Industries rose 0.77 per cent to Y654, after jumping 1.24 per cent Thursday on a report in the leading Nikkei business daily that said the firm and Germany's Siemens are to bid nearly $US10 billion ($A10.82 billion) for some energy assets owned by France's Alstom.
Carmaker shares were mixed with Honda falling 0.53 per cent to Y3,556 and Toyota slipping 0.44 per cent to Y5,854, while Nissan rose 0.31 per cent to Y965.
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