Shares finished higher after confidence was boosted by the 1.5% improvement in the Dow Jones on Friday.

The Nikkei rose 83.52 points, or 0.57%, to close at 14,723.49.

On Friday, it closed down 57.11 points, or 0.39%.

Internationally known blue chips led early gainers, although traders said activity was light as investors continued to monitor developments in the ruling Liberal Democratic Party's efforts to solidify a coalition with the opposition Liberal Party.

A coalition is expected to lead to new economic stimulus measures, as the Liberal Party favors tax reforms to boost the economy.

Nissan Motor Co rose 14 to 400 after Nissan, Hitachi and Unisia Jecs said they had agreed to launch feasibility studies for the development of technologies for intelligent transport systems (ITS).

Unisia, an auto parts manufacturer affiliated with Nissan, was up 30 at 220. Hitachi was down 33 at 692.

"The deal would be supportive for Nissan in the sense that Nissan would gain Hitachi's technologies and that would support Nissan's earnings," a trader at a medium-sized broker said.

The pharmaceutical sector rose 0.49% as Sankyo Co, which had lagged behind its competitors, led the gains.

Sankyo was up 55 at 2,750. Daiwa Securities was up nine at 433.

Sumitomo Bank said it had contacted US mutual fund company T. Rowe Price Associates about possible participation in a planned asset management venture with Daiwa Securities.