Japanese stocks scaled six-month peaks on Friday as the yen took a spill, while other Asian markets lagged as investors resigned themselves to an inevitable slowdown in U.S. stimulus.
Tokyo’s Nikkei .N225 rallied more than 1 percent but succumbed to profit-taking late in the session to finish 0.1 percent higher.
Still, it is up nearly 10 percent over the last two weeks, setting the stage for a re-test of its 2013 peak at 15,942.
European shares were seen starting modestly higher with financial bookmakers expecting major European indices .FTSE .GDAXI.FCHI to open up as much as 0.5 percent.
The Nikkei and the yen have been dancing in counter-step for months, with every rally in the share index a signal for speculators to dump the yen. A lower currency then promises to boost Japanese exports and earnings, further supporting shares.
So an early spike in the U.S. dollar to above 101.20 yen for the first time since July was a clear green light to buy shares. The dollar retreated to 101.10 yen as the Nikkei lost steam.
The euro climbed as far as 136.54 yen, highs not seen since October 2009, before slipping back to 136.20.
“In the last 24 hours, the yen’s price action has been tick for tick with the Nikkei,” said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.
Bank of Japan Governor Haruhiko Kuroda gave his blessings to the move, saying the yen was not abnormally low and there were no signs of a bubble in shares.
At the same time, a swing higher in long-term U.S. Treasury yields was expanding the dollar’s rate advantage over the yen, Ruskin added. Yields on 10-year Treasuries were at 2.78 percent, compared to 0.65 percent for JGBs.
“Both sides of the USD/JPY equation are working in favor of yen weakness,” said Ruskin. “The forex message this year is that USD/JPY and USD/EMG (emerging currencies) are most vulnerable to a back-up in U.S. long-end yields.”
Yields have moved up in expectations the Federal Reserve will have to start tapering its asset buying at some point, whether December or March.
Yet Wall Street has finally accepted that such a move would not mean the Fed was any closer to actually hiking interest rates, keeping short-term yields low.
The sheer exuberance of U.S. and Japan stocks is attracting money away from some emerging markets, part of a long-heralded rotation of funds to the developed world.
That shift sapped Latin American shares on Thursday .MILA00000PUS and weighed on regional markets such as the Philippines .PSI and India .SETI.
Australian shares .AXJO bounced 0.9 percent, but that came after a four-session losing streak. South Korea .KS11 climbed 0.6 percent, while Hong Kong .HSI advanced 0.5 percent.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.3 percent on Friday, after shedding 1.4 percent on Thursday.
OIL STEADIER AFTER RALLY
The U.S. dollar fared less well against the euro, which bounced after European Central Bank President Mario Draghi shot down a report that the central bank was actively considering cutting a key interest rate below zero.
That lifted the common currency up to $1.3472, from a one-week low of $1.3399. A couple of ECB members are talking later on Friday, along with two more officials from the Fed.
Currencies leveraged to commodities and global growth took a hit with the Canadian, New Zealand and Australian dollar all falling sharply.
The Australian dollar took a further slug from Reserve Bank of Australia (RBA) Governor Glenn Stevens who said he was open to the idea of intervention to push the currency lower.
While he added that the risks of action were still too great, the comment served as an excuse for speculators to breach options at $0.9250 and trigger a run to below $0.9200.
In commodity markets, Brent crude oil held near $110 a barrel having jumped over $2 on Thursday to its highest in more than a month.
The rally was fuelled by a sharp run-up in gasoline and gas oil prices on news of dwindling stocks and refinery glitches in the United States and Europe.
Upbeat U.S. economic data helped support prices, while traders also kept an eye on talks between Western powers and Iran on hopes of an accord over its nuclear program.
U.S. oil was off 37 cents, but that followed a rise of $1.59 overnight.
Source: Reuters
