TOKYO -- Japan's benchmark stock index touched its highest level in 31 years on Tuesday morning, spurred by gains in U.S. shares and hopes Japan's next prime minister will spend big to boost the economy.

The Nikkei Stock Average rose over 1% at one point to hit 30,795.78, before paring back some of the gains in the morning session, although it remained above the closing price of 30,467 yen marked in February and on track for its strongest finishing level since August 1990. Electronic, automotive and chemicals stocks led the gains, which followed an 8% surge so far this month.

The rally has been underpinned by Prime Minister Yoshihide Suga's decision not to run for re-election in the Liberal Democratic Party's leadership contest scheduled for Sept. 29. The winner of the LDP vote will become Japan's new prime minister amid rising demand for better measures to control COVID-19 and a hefty fiscal package to revitalize the economy.

"Suga's lack of popularity raised concerns that the ruling coalition will lose its majority in the [Lower House] election" scheduled for after the LDP election, said Tomoichiro Kubota, senior market analyst at Matsui Securities. "The change of prime minister has led to the view that the current regime will continue, reducing political risk."

Japanese stocks had eased after reaching their February high, which left them looking undervalued compared to U.S. and European markets.