Earlier, Japan's Ministry of Finance released data that showed the country's January exports fell 12.9 percent at an annual rate on-year, worse than analysts' expectation of a 11.3 percent drop while imports were down 18 percent on-year. Exports to China, one of Japan's biggest trading partners, slipped 17.5 percent in January.
Harumi Taguchi, principal economist at IHS Global Insight, said in a note that Japan's seasonally adjusted trade balance remained in a surplus, while official data showed non-seasonally adjusted trade balance for January was in deficit.
"Lower oil prices and the yen's strength, in addition to the weak domestic demand, raises the likelihood of a trade surplus on a continuing monthly basis," said Taguchi.
"That said, the softer outlook for the global economy and downside from yen strengthening could weigh on exports and limit the improvement of the trade balance over the near term. Sustained weakness for external demand remains a downside risk for Japan's production and real GDP growth," she added.
Despite the disappointing trade numbers, most Japanese stocks, including the trading houses that supply everything from energy to metals to grains and textiles in resource-scarce Japan, finished up. The big five trading houses, Mitsubishi, Mitsui, Sumitomo, Itochu, and Marubeni, gained between 2.79 and 8.61 percent.
The yen strengthened against the dollar, with the dollar-yen pair trading down 0.21 percent at 113.84 as of 2.30 p.m. HK/SIN time, compared to yesterday's close of 114.04.
While a stronger yen is usually a negative for exporters as it reduces their overseas profits when converted into local currency, major exporters such as Toyota, Honda, and Sony followed the rally on the benchmark index to close up between 1.71 and 3.55 percent.
Banks were also a focus in the region with Japanese banks gaining between 1.78 and 2.86 percent, with Mitsubishi UFJ leading the pack. The Japanese overnight call rate, which is the benchmark lending rate between banks, fell to negative levels on Wednesday. Earlier this week, Japan's negative interest rate policy kicked in as concerns over the long-term profitability of the banks lingered.
Chinese banks were also in investors cross-hairs after multiple reports emerged about fraudulent loans and money laundering.
The Financial Times reported that fraudulent loans are on the rise in China as economic growth slowed, threatening to undermine the mainland banking system. The FT reported the latest victim was the Bank of Liuzhou, where 32.8 billion yuan ($4.9 billion) in fraudulent loans were discovered late last year. The number represented more than 40 percent of the bank's total assets of 80 billion yuan at the end of 2014.
Overnight, there were reports that authorities in Spain had raided the office of the Industrial and Commercial Bank of China as part of a money laundering probe.