TOKYO, Sept 18 (Reuters) - Japanese shares inched higher on Friday, helped by broad optimism surrounding Prime Minister Yoshihide Suga's policies, but expensive valuations and a murky earnings outlook made investors cautious ahead of a long weekend.

Nikkei share average rose 0.18% to 23,360.30 and the broader Topix 0.49% to 1,646.42, with turnover hitting the highest level in three weeks.

Both the indexes stopped well short of testing a near seven-month peak scaled on Monday on hopes Suga will ensure political stability and policy continuity. Suga, who has said he would stick to his former boss' "Abenomics" economic growth polices became Japan's prime minister on Wednesday.

"The Nikkei is already trading at 23 times the earnings and the Topix 24 times. Investors will hesitate to buy at current levels," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

System integration and software companies jumped after Nikkei business daily reported that Suga will work to get his flagship new digital technology agency running by autumn 2021.

NTT Data gained 7.6% while Fujitsu rose 4.2% and NEC added 4.0%. Smaller software firms also rose in heavy volume with Shift rising 2.9% and Change up 4.4%.

Stocks in railway operators also rose, as investors bought back after a recent sell-off, before the four-day weekend.

East Japan Railway gained 2.4% and West Japan Railway was up 1.7%. But, both were still down about 6% this week after they gave a guidance of record annual losses earlier in the week.

Japan's stock market will be closed on Monday and Tuesday for a national holiday.

"The companies hit hard by the coronavirus are likely to post underwhelming earnings as the railway companies have shown this week," Fujito at Mitsubishi UFJ Morgan Stanley added.

Telecom shares came under fresh pressure after Suga instructed a minister to consider lowering cell phone charges, one of his long-time policy focus.

NTT Docomo, KDDI and SoftBank, fell 2.8%, 4.1% and 5.0% respectively. (Reporting by Hideyuki Sano; editing by Uttaresh.V and Ana Nicolaci da Costa)