Nikkei hits four-month high on weak yen; geopolitical tensions weigh

SINGAPORE, June 18 (Reuters) - Japan's Nikkei share average rose to touch a four-month high on Wednesday, boosted by a weaker yen, although investors kept a wary eye on the rapidly escalating conflict between Israel and Iran.

The Nikkei .N225 was 0.59% higher at 38,766.01 as of 0226 GMT, having touched 38,786.64, its highest level since February 21. The broader Topix .TOPX rose 0.4%.

The biggest boost to the Nikkei came from Uniqlo-brand owner Fast Retailing 9983.T, Switch-maker Nintendo 7974.T and chip firm Advantest 6857.T that were up 1.4%, 6% and 1.1%, respectively.

The gains in Japanese shares were capped by geopolitical tensions, with investors increasingly nervous over the possibility of a more direct U.S. military involvement in the Middle East.

Reuters reported, citing three U.S. officials, that the U.S. military is deploying more fighter aircraft to the region and extending the deployment of other warplanes. U.S. President Donald Trump called for Iran's "unconditional surrender."

Maki Sawada, an equities strategist at Nomura Securities, said the market is cautious about developments in the Middle East, and will be sensitive to any headlines.

"Market caution seemed to have calmed yesterday, but it is building again. The weaker yen is providing support," Maki said.

The yen JPY=EBS hit a one-week low of 145.445 per U.S. dollar in early trading. A weaker Japanese currency tends to boost shares of exporters, as it increases the value of overseas profits in yen terms when firms repatriate the money to Japan.

Markets shrugged off the move by the Bank of Japan on Tuesday to hold interest rates steady and decelerate the pace of its balance sheet drawdown next year.

"Japan remains one of our favoured equity markets," said Ben Powell, Chief APAC Investment Strategist at the BlackRock Investment Institute. "Ongoing shareholder-friendly reforms to boost profitability support our tactical overweight on Japanese stocks. We prefer unhedged equity exposures, given the yen's tendency to strengthen during periods of market stress."