US bank earnings, cooling inflation boost Japan's Nikkei, but firm yen caps gains

By Kevin Buckland

TOKYO, Jan 16 (Reuters) - Japan's Nikkei share average climbed on Thursday, tracking a rally on Wall Street amid robust U.S. bank earnings and a cooling in core consumer inflation.

The Nikkei .N225 added 0.28% to 38,551.96 as of the midday recess, setting it up to snap a five-day losing streak.

However, gains were capped by a rallying yen as traders ramped up bets that the Bank of Japan (BOJ) will raise interest rates at its policy meeting next week.

The broader Topix index .TOPX was flat.

Financials were the Nikkei's best performing stocks after U.S. banks, including JPMorgan JPM.N and Goldman Sachs GS.N, reported a surge in profits overnight. Nomura Holdings 8604.T, Japan's biggest brokerage, advanced 3.18%.

Moderating U.S. core inflation saw a revival in wagers for the Federal Reserve to lower rates again by July, boosting investor sentiment.

At the same time, comments from BOJ Governor Kazuo Ueda and one of his deputies, Ryozo Himino, this week suggested next week's policy meeting is live. Reuters and other media reported that a hike is likely on Jan. 24, barring a resurgence in market volatility after Donald Trump's inauguration as U.S. President.

"If (the) U.S. earnings season continues to produce robust results like we saw from financials yesterday, it's likely that stock markets will perform well on that," said Maki Sawada, a strategist at Nomura Securities.

"But heading into the BOJ meeting next week and Trump's inauguration, the uncertainty surrounding those big events are a growing weight on sentiment."

The yen strengthened to a nearly one-month high of 155.21 per U.S. dollar JPY=EBS, preventing a bigger rally for the Nikkei and weighing on automakers in particular, as a stronger home currency reduces the value of overseas revenues. Nissan 7201.T slumped 4.39% and Toyota 7203.T slid 2.76%.

By contrast, home furnishings retailer Nittori 9843.T, which sources a lot of its products from abroad, jumped 5.75% to be among the Nikkei's top performers.

(Reporting by Kevin Buckland; Editing by Sumana Nandy)

((Kevin.Buckland@thomsonreuters.com;))