Japanese stocks rose on Tuesday as risk appetites increased on news of a basic agreement on the Trans-Pacific Partnership trade pact and on fading expectations that the Federal Reserve will raise US interest rates this year.

The Nikkei share average gained 1 per cent to 18,186.10, closing above 18,000 points for a second consecutive day.

Japan’s steel companies led the day’s gains, adding 3 per cent to the Topix subindex for iron and steel with Nippon Steel and Sumitomo Metal gaining 4 per cent and JFE Holdings 2.9 per cent.

The broader Topix added 0.8 per cent to close at 1,475.84 with all but five of its 33 subindexes in positive territory.

The JPX-Nikkei Index 400 gained 0.8 per cent to 13,221.78.

Investors had been jittery amid fears of sharper Chinese economic slowdown and a possible US interest rate hike this year. But they have returned to riskier assets after a weak US jobs report on Friday prompted speculation the Fed will wait longer to start normalising rates.

"One of the two big persistent concerns has faded, so investors are taking risks," said Masashi Oda, senior investment officer at Sumitomo Mitsui Trust Bank. "Short-covering by those who had shorted stocks on those worries will likely support the market for a while."

He said that what used to be around 16,500 as the Nikkei's downside is now lifted to 17,500, although the market continues to monitor economic indicators which could gives clues to the U.S. economy's health.

Bank America Merrill Lynch said that from a domestic political standpoint, the TPP is one symbol of Prime Minister Shinzo Abe's growth strategy and an important basis for moving forward on agricultural and other reforms.

"The short-term impact is likely to be limited because some time will be needed for the TPP itself to take effect and tariffs are to be gradually eliminated," economists at the brokerage wrote in a report. "Over the medium term, though, effects on Japan's politics and economy are likely to be gradually felt."

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