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Nikkei leads Asian equity rally on weak yen, Yellen comments

Japanese shares outperformed on Thursday thanks to a weaker yen while the rest of Asian investors cheered stimulus-supportive remarks from Federal Reserve Vice Chairman Janet Yellen.

Ahead of Janet Yellen's Thursday's testimony to Congress, she released a statement after the U.S. market close. She said the Federal Reserve needs to do more work to support the economic recovery before it can return to "a more normal approach" to monetary policy, echoing the sentiment of Chairman Ben Bernanke.

(Read more: Taper likely in nextcouple of months: Morgan Stanley)

Meanwhile, fresh record highs from the Dow and the overnight also bolstered sentiment in the region after upbeat earnings from retailing giant Macy's fostered optimism about holiday shopping.

Asia-Pacific Market Indexes Chart

Nikkei up 2.1%

Japan wage increase crucial for growth: Pro

Japan's benchmark index closed at its highest levels in six months, within sight of the 15,000 level, after Finance Minister Taro Aso highlighted the importance of currency intervention. His comments saw dollar-yen extend gains to 99.60, near a two-month high of 99.80.

Blue-chip tech stocks led gains with Panasonic higher by 4 percent and Sony up 2 percent. Large-caps also lent support with index heavyweights Fast Retailing and Fanuc higher by 5 and 3 percent, respectively.

On the economic front, growth slowed in the third quarter from the April-June period.

Shanghai up 0.7%

Mainland markets reversed losses to close in positive territory after hitting its lowest levels since September 2 at the 2,078 mark earlier in the session.

Sentiment was cautious due to worries of tight liquidity after the People's Bank of China drained funds from money markets for a second week.

(Read more: JPMorgan's fruitful ties to a member of China's elite)

Morgan Stanley: Optimistic on China & Japan

Financials extended losses after data on Wednesday showed bad bank loans rose to their highest level in eight years. Industrial Bank fell 2.5 percent while Pudong Development Bank and Bank of Communications fell over 1 percent each.

Sydney up 0.7%

Australia's index recovered after Wednesday's four-week low thanks to strong gains in banks. Commonwealth Bank of Australia, Australia and New Zealand Banking and Westpac led gains by over 1 percent each after falling on profit-taking in the previous session.

Home builder James Hardie surged 15 percent after announcing first-half profits more than doubled.

Department store David Jones added 5 percent after announcing that UBS become a substantial shareholder.

Seoul rises 0.2%

South Korea's benchmark Kospi rebounded from the the previous day's two-month low after the Bank of Korea left its main policy rate unchanged at 2.5 percent. The central bank said the domestic economy would see a steady recovery trend and expected inflation to remain low for the time being.

Samsung Electronics bounced back from Wednesday's 2.5 percent loss, up 0.3 percent.

Among emerging markets, Indian shares and the Jakarta Composite both finished the session over 1 percent higher.

By's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC