The Nikkei average finished morning trade above 13,000 for the first time since June 2001 today after investors bought blue chips such as Sumitomo Mitsui Financial Group Inc. due to confidence in Japan's economy, pushing the benchmark up 0.90 percent.
Resource-related firms such as Inpex Corp. gained after crude oil futures jumped above $67 per barrel, while beer maker Kirin Brewery Co. Ltd. rose after a brokerage lifted its rating and target share price.
But caution before the U.S. Federal Reserve's policy-setting meeting later in the day and worries about oil's effect on the U.S. economy were tempering aggressive buying, analysts said.
"Investors are paying a lot of attention to oil prices and their effect on the U.S. economy, as well as the Fed...yet there are still strong expectations for the domestic economy," said Toshihiko Matsuno, assistant general manager of investment research at SMBC Friend Securities.
The Federal Reserve meets to debate interest rates and is widely expected to raise its benchmark federal funds rate to 3.75 percent. This would be the Fed's 11th straight increase in the current tightening cycle.
Yutaka Miura, deputy manager of equity information at Shinko Securities, said Japanese market participants were concerned that a further rate increase could dent U.S. stocks.
"After the effects of the hurricane, if U.S. stocks fall further I think there's a good chance the Japanese market could feel some pressure," he said.
The Nikkei finished the morning up 117.22 points at 13,075.90. If it closes at this level, it will book its highest finish since June 11, 2001.
The broader TOPIX index finished the morning up 1.12 percent, or 14.94 points, at 1,343.78.
Sumitomo Mitsui, Japan's third-largest lender, rose 2.9 percent to 993,000 yen, after earlier hitting a new lifetime high of 997,000 yen.
Mizuho Financial Group, Japan's biggest bank, rose 1.7 percent to 660,000 yen, becoming the most actively traded issue by value on the Tokyo bourse's first board. It earlier hit 663,000 yen, also a new lifetime high.
U.S. crude futures hovered above $67 after surging more than $4 in the previous session. Traders said fears that a new tropical storm could wreak havoc in the Gulf of Mexico would keep prices high.
High oil prices are a bane to stock markets because they crimp consumer spending and eat into corporate profits.
Local market participants were particularly concerned about the effects of oil prices on the U.S. economy, said SMBC Friend's Matsuno.
However, resource-related firms were buoyed by the higher prices.
Oil and gas explorer Inpex rose 2.9 percent to 860,000 yen.
Trading firm Mitsubishi Corp. rose 1.8 percent to 2,005 yen.
Oil company AOC Holdings Inc. gained 6.6 percent to 2,275 yen, reversing a 1.2 percent fall the previous session due to an announcement of new share issues for a new stakeholder, Showa Shell Sekiyu K.K.
Elsewhere, Kirin Brewery, Japan's second-biggest beer brewer, surged 11.6 percent to 1,254 yen after Nikko Citigroup raised its rating on the company to "Buy/Low Risk" from "Sell/Low Risk" and its target price to 1,480 yen from 940 yen.
Analysts said the market appeared to pay little attention to news from the six-way talks with North Korea.
Trade was active, with 1.54 billion shares changing hands, the highest morning total since September 9. Gainers overwhelmed decliners 1,180 to 358.