The 225-issue Nikkei Stock Average finished 65.53 points, or 0.22 percent, higher from Friday at 30,447.37.
The broader Topix index of all First Section issues on the Tokyo Stock Exchange closed 6.06 points, or 0.29 percent, higher at 2,097.71.
Trading volume on the main section decreased to 1,135.44 million shares from Friday's 1,486.00 million shares.
Following a strong increase last week, both indexes opened low in the morning and moved in negative territory for most of the day, as investors locked in gains accumulated in a relatively short term, brokers said.
However, positive market sentiment remained under the continuing impact of Japanese Prime Minister Yoshihide Suga's decision not to seek re-election in the leadership race of the ruling Liberal Democratic Party (LDP), which brought hopes that the successor would come up with a fresh economic relief package to win popularity, brokers said.
Since the party controls the House of Representatives, the LDP leader serves as prime minister. A general election will take place this fall after the LDP leadership election.
Chihiro Ota, the assistant general manager of investment research at SMBC Nikko Securities Inc, said, "There was a sense of overheating in the market after recent sharp rises, but bullish sentiment remained among retail investors, and foreign investors are also starting to buy Japanese stocks."
By the close of play, iron and steel, oil and coal product, and bank shares were major gainers. Advancing issues outnumbered declining ones 1,534 to 554 on the First Section, while 101 finished unchanged.
Toyota's announcement of cutting its global production outlook on Friday triggered selling in some car and parts makers, weighing on the gains over the market, brokers said.
The stock price of Toyota dropped 1.6 percent Monday after the automaker said that it would reduce its global output outlook for the current fiscal year through March by about 300,000 units to around 9 million vehicles because of the spread of COVID-19 and a semiconductor crunch.
In addition, the announcement evoked concerns about supply issues for other automakers because Toyota was the firm that has been believed dealing well with the impact of the COVID-19 pandemic and the chip crunch, brokers said.
Among other automakers, Honda dropped 1.3 percent, Mitsubishi Motors fell 1.0 percent, and Nissan Motor ended down 1.1 percent.
Bucking the weak performance of automaker related firms, Mitsui High-tec, a manufacturer of in-vehicle motor cores used in hybrids and electric vehicles, surged 21.2 percent to its daily limit high, as it released an upward revision of its earnings forecast for the year through January 2022 on Friday due to stronger-than-expected parts demand for electrified cars.
Renesas Electronics, a major maker of semiconductors used in cars, rose 4.4 percent, benefiting from Toyota's announcement that heightened expectations of remaining strong demand for its chips.
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