* Japan Tobacco best contributor to Nikkei
* Japan Post shares soar for 2nd day on strong demand
* Takata plunges as Honda says will no longer use its inflators
By Ayai Tomisawa
TOKYO, Nov 5 (Reuters) - Japanese stocks rose on Thursday morning after the dollar strengthened against the yen as the Federal Reserve Chair Janet Yellen pointed to a possible December interest rate “liftoff”, while Japan Tobacco’s dividend hike attracted buying.
Japan Tobacco Inc soared 6.8 percent and contributed a hefty 11 points to the Nikkei share average’s rise after it raised its full-year dividend payout outlook to 118 yen per share from 108 yen per share.
The Nikkei rose 0.6 percent to 19,034.02 in midmorning trade after gaining 1.3 percent on Wednesday helped by strong demand by three Japan Post shares, which surged as investors rushed to get a piece of the group’s $12 billion initial public offering.
On Wednesday, the Fed’s Yellen laid out what now appears the base case at the U.S. central bank - that low unemployment, continued growth and faith in a impending return of inflation meant the U.S. was ready for higher interest rates.
“On top of good corporate earnings announcements, the weak yen helped support market sentiment,” said Takuya Takahashi, a strategist at Daiwa Securities.
Although the dollar was at 121.43 yen at 0131 GMT and triggered profit-taking in some exporters, it had reached a two-month high of 121.72 yen overnight, helping overall sentiment.
The three Japan Post shares extended their gains into the second day, with Japan Post Insurance Co soaring more than 17 percent, Japan Post Bank Co gaining 8 percent and Japan Post Holdings Co climbing 5 percent.
“There is strong demand in the Japan Post shares. Their high yields are really attractive,” said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management.
Bucking the strength, Takata Corp plunged 21 percent to a 6-1/2-year low after top customer Honda Motor Co said it would stop using Takata’s front air bag inflators.
Honda dropped 2.0 percent to 3,939 yen after CLSA cut its rating to ‘outperform’ from ‘buy’ despite the automaker’s earnings outlook hike which was better than the market expected.
“Honda had a tough FY3/15 on the back of quality-related issues, particularly the Takata airbag problem, and these issues continued to harass Honda today,” CLSA wrote in a report.
CLSA added that nonetheless, profit slightly beat expectations. But with its share price approaching its target price of 4,550 yen, it cut Honda’s rating.
Meanwhile, the market is focused on Toyota Motor Corp’s earnings, which are scheduled to come out after the market close.
The broader Topix gained 0.6 percent to 1,549.67 and the JPX-Nikkei Index 400 added 0.7 percent to 13,937.13. (Reporting by Ayai Tomisawa; Editing by Eric Meijer)