(Updates at 0600 GMT)

TOKYO, Aug 22 (Reuters) - Japan's Nikkei share average

closed at a three-week high on Thursday, recovering from the

index's sharpest drop in 37 years hit earlier this month, but

caution ahead of remarks from central bank heads in Japan and

the U.S. capped gains.

The Nikkei rose 0.68% to 38,211.01, its highest

close since Aug. 1.

"The market was cautious ahead of the remarks by the Bank of

Japan Governor (Kazuo) Ueda as well as Federal Reserve Chair

(Jerome) Powell later this week," said Shuutarou Yasuda, a

market analyst at Tokai Tokyo Intelligence Laboratory.

"Also, with the Nikkei recovering to this level, some

players wanted to sell stocks at a rally."

The Nikkei plunged 12.4% on Aug. 5 in its biggest decline

since the 1987 Black Monday crash but bounced back 10% the

following day.

The index is still below its July peak above 42,000 but has

risen 23% from its Aug. 5 low.

Foreign investors exited Japanese cash equities worth 47.9

billion yen ($329.78 million) in the week ended Aug. 17, after

about 521.9 billion worth of net purchases in the prior week.

The market focus is also on Powell's keynote speech at

Jackson Hole and a special session of Japan's parliament on

Friday, where BOJ's Ueda will speak.

Uniqlo-brand owner Fast Retailing ( FRCOF ) rose 2.5% to

boost the Nikkei the most. Silicon wafer maker Shin-Etsu

Chemical ( SHECF ) jumped 2.75%.

Technology investor SoftBank Group fell 1.25% and

weighed on the Nikkei the most.

The broader Topix rose 0.25% to 2,671.4.

Japan Tobacco ( JAPAF ) rose 1.41%, after the tobacco and

drink maker agreed to acquire U.S.' Vector Group ( VGR ) in an

around $2.4 billion deal.

The drug sector rose 1.56% to become the top

performer among the Tokyo Stock Exchange's 33 industry

sub-indexes.

Banking, down 1.3%, was the worst performing

sector.

($1 = 145.2500 yen)