Tokyo  - Stocks in Tokyo rose Thursday on investor speculation that the central bank would drop interest rates.

The benchmark Nikkei 225 Stock Average gained 54.71 points, or 0.63 per cent, to close at 8,667.23.

The broader Topix index of all first-section issues also inched up 0.23 points, or 0.03 per cent, at 838.69.

The increases were seen as a two-day meeting of the Bank of Japan got under way Thursday with investors betting on a rate cut after the US Federal Reserve lowered its benchmark rate to a record low this week.

The Bank of Japan is under pressure from the government to lower rates Friday to add liquidity to financial markets and ease borrowing by businesses as the world's second-largest economy finds itself in a recession.

Its benchmark rate now stands at 0.3 per cent.

Initially, stocks had opened lower on a strengthening yen. At midday (0300 GMT), the dollar was quoted at 87.72-77 yen, down from Wednesday's 5 pm quote of 88.69-71 yen.

The euro was quoted at 1.4417-22 dollars, up sharply from 1.4079-81 dollars late Wednesday, and at 126.52-57 yen, up from 124.87-91 yen. (dpa)