* Nikkei off 16 pct in 2016, retracing 40 pct 'Abenomics' gains
* Ono Pharma soars after forecasting strong sales for new drug
By Ayai Tomisawa
TOKYO, April 12 (Reuters) - Japan's Nikkei share average rose on Tuesday morning as the dollar gained versus the yen in early morning trade, lifting cyclical stocks such as exporters as well as recently battered banking shares.
Weakness in the dollar kept the market worried after it slumped to a 17-month low of 107.63 yen on Monday but by 0146 GMT on Tuesday, the dollar stood at 108.14 yen.
The Nikkei gained 1.0 percent to 15,903.30 in midmorning trade. The benchmark index has fallen 16 percent this year, while it is retracing about 40 percent of gains since the start of 'Abenomics' in 2012.
Traders said that Japanese equities are swayed by foreign exchange rates, with Japan Inc's last fiscal years' earnings announcements scheduled within a few weeks. Investors will likely start taking positions after companies release their forecasts for this fiscal year, they said.
They added that the Nikkei may stay sluggish until then, as many investors remain sceptical of 'Abenomics."
"Investors are frustrated about the lack of effective measures against the strong yen," said Hikaru Sato, senior technical analyst at Daiwa Securities. "Confidence in Japanese stocks has waned since the end of last year and it still hasn't recovered."
Banking stocks were leading the gains on Tuesday, with Mitsubishi UFJ Financial Group rising 4.8 percent and Mizuho Financial Group gaining 4.2 percent.
Exporters gained ground, with Toyota Motor Corp gaining 3.2 percent and Honda Motor Co adding 3.3 percent.
Outperforming the market was Ono Pharmaceutical Co, which jumped as much as 14 percent after the drugmaker said its sales forecast for its new cancer treatment drug will likely be 126 billion yen for this fiscal year which ends in March 2017.
It is about six times the drug's sales of 21.2 billion yen for the last fiscal year through March.
The broader Topix added 1.4 percent to 1,297.76 and the JPX-Nikkei Index 400 advanced 1.3 percent to 11,701.13.
(Reporting by Ayai Tomisawa; Editing by Eric Meijer)