Tokyo stocks closed sharply higher on Wednesday after rallies on Wall Street as US inflation data fuelled hopes of an end to interest rate hikes.

The benchmark Nikkei 225 index added 2.52 percent, or 823.77 points, to 33,519.70 while the broader Topix index ended up 1.19 percent, or 27.93 points, at 2,373.22.

The dollar stood at 150.66 yen, against the 150.37 yen seen Tuesday in New York.

US inflation eased to 3.2 percent in October, fuelling market hopes that the Fed has stopped hiking interest rates.

Japanese shares "extended gains significantly" as a result, Iwai Cosmo Securities said.

"Today potentially lays the groundwork for the Fed to adopt a much less hawkish position -- especially compared with September -- and markets are now seemingly convinced the tightening cycle is over," senior market analyst Craig Erlam at OANDA said.

Shortly before the opening, government data showed Japan's economy contracted a worse-than-expected 0.5 percent in the three months to September.

Among major shares in Tokyo, SoftBank Group surged 5.19 percent to 6,023 yen, Sony Group rose 5.00 percent to 13,220 yen, and chip-testing equipment maker Advantest surged 7.48 percent to 4,797 yen.

Uniqlo operator Fast Retailing added 3.56 percent to 36,900 yen.