By Chao Deng 

A weaker Japanese yen fueled gains in Japan shares Friday after Federal Reserve Chairwoman Janet Yellen made a strong case for raising interest rates before year-end, despite instability in global markets.

The Nikkei Stock Average was up 0.9% and the S&P ASX 200 was up 0.2%. The gains came after U.S. stocks dropped overnight but pared their steepest intraday declines.

South Korea's Kospi is down 0.3%.

Still, stocks from Hong Kong to Australia are headed for losses this week, after weak Chinese manufacturing data renewed concerns about the ripple effects of its slowing economy, and the potential fallout from an emissions scandal hurt shares of some Japanese auto and car-parts makers. Of major markets, only the Shanghai Composite Index is set to rebound by 1.5% this week.

In Japan, shares were recovering Friday after shedding 2.8% Thursday, with gains in the auto sector. Shares of Mazda Motor Corp. are up 1% after falling nearly 7% a day earlier, and auto-parts maker Denso Corp. is up 1.7%. Alleged cheating by Volkswagen AG on U.S. exhaust-emissions tests dented shares in the sector on Thursday, and raised the possibility the auto industry could shift away from diesel engines to cleaner technology.

Earlier Friday, government data showed that Japan's consumer prices fell for the first time in over two years in August, the latest setback for Prime Minister Shinzo Abe's campaign against deflation. The country's core consumer-price index, which excludes fresh food, fell 0.1% from a year earlier, which could spur the central bank to more action in pursuit of 2% inflation.

Currencies in the region mostly fell on the back of a stronger dollar on Friday, with a weaker Japanese yen helping the country's exporters.

The Japanese yen was as weak as Yen120.37 against the U.S. dollar early Friday, after Ms. Yellen laid out her most detailed argument yet for the central bank to begin raising short-term interest rates in the coming months. She said that inflation pressures will build gradually over the next few years. The prospect of higher interest rates are a boon for the dollar, as they make the currency more attractive to yield-seeking investors.

The yen was last down 0.2% at Yen120.34 against the U.S. dollar compared with its close in Asia on Thursday.

The Malaysian ringgit hit a fresh 17-year low of 4.3800 against the U.S. dollar, while the Indonesian rupiah stayed near its 17-year low reached Thursday of 14,645 per U.S. dollar.

The New Taiwan dollar strengthened slightly after hitting a six-year low Thursday, when country's central bank lower interest rates for the first time since 2009. The New Taiwan dollar last traded at 33.113 per U.S. dollar.

Gold prices were last down 0.4% at $1,149 a troy ounce. Still, gold prices have rallied to their highest level in a month recently as losses in U.S. stocks and weaker economic data pushed some investors to buy the metal as a haven.

Brent crude oil was off 0.1% at $48.12 in Asia trade.

Markets in India and the Philippines are closed for holidays.

Markets in Australia, Hong Kong, Taiwan and South Korea are closed next Monday.

Write to Chao Deng at Chao.Deng@wsj.com

(END) Dow Jones Newswires

September 24, 2015 21:42 ET (01:42 GMT)