Picture: THINKSTOCK
Picture: THINKSTOCK

TOKYO — Japanese equities soared to five-and-a-half-year highs on Friday, with the dollar sailing past the symbolic ¥100 level and beefing up the outlook for Corporate Japan, but shares elsewhere in Asian shares retreated as global equities paused overnight from recent rallies.

European stock markets will likely inch higher after the pan-European FTSEurofirst closed flat overnight to stay near five-year highs. Financial spread betters predicted London’s FTSE 100, Paris’s CAC 40 and Frankfurt’s DAX

would open as much as 0.2% higher.

US stock futures were up 0.1%, suggesting a slightly firmer Wall Street open after US stocks slipped from record highs on Thursday.

The US currency was buoyed after Thursday’s weekly US data showed initial jobless claims fell to the lowest level in more than five years, following last week’s much stronger than expected monthly nonfarm payrolls report for April.

"What you need to understand about what is going on in the US is that we’re growing, this recovery is real. There may be some bumps, but the fundamental push forward is there," said Carl Larry, president of Houston-based Oil Outlook and Opinions.

The yen’s resumed downtrend bodes well for Japanese exporters and expectations of robust earnings drove the Nikkei stock average up 3% to its highest since January 2008.

The index is up 6.4%, on track for its biggest weekly gain since December 2009 when it jumped 10.4%.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.9%, after climbing to its highest since July 2011 on Thursday. For the week, the index is set for a gain of 0.8%.

A strong dollar dented appetite for safe-haven US Treasuries, pushing the 10-year Treasury yield up to a one-month high near 1.844% in Asia, while rallying Japanese stocks lifted 10-year Japanese government bond yields up 10 basis points to 0.690%, their highest since late February.

"It’s global buying of the US, with more investors feeling comfortable buying the dollar. US stocks are stabilising four years after the Lehman collapse. It’s a good sign for markets when funds target the US, where investors are willing to take on risk," said Goro Ohwada, president and CEO at Japan-based Aino Investment Corp, a fund of hedge funds.

Signs of a steady US recovery could heighten speculation over when the Federal Reserve will begin scaling back its aggressive quantitative easing to push up US yields, attracting funds from lower-yielding countries such as Japan.

Capital flows data showed Japanese investors were net buyers of foreign bonds in the last two weeks, reversing their relentless net selling since late January. They repatriated a total of ¥9.33-trillion in January-April.

The dollar extended Thursday’s gains to hit a fresh four-year high of ¥101.20, having stalled for a month after reaching a high of ¥99.95 in early April. The euro rose to ¥131.91, its highest since January 2010.

"The market is returning to where it should be, to buying the dollar. Failed attempts to break the ¥100 had lightened positions and cleared the way for such a move," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

Mr Maeba added that the dollar may see a near-term correction to the downside, but the ¥99 level will now signal a buying opportunity and markets may test ¥102-¥103 in coming weeks.

Yen impact

The currency moves had diverging impacts on Asian shares.

Australian shares erased most of their early gains after hitting a fresh five-year high earlier, as strong gains in the banking sector and companies with a strong exposure to the US market rallied on the back of the dollar’s gain against the yen.

The Australian dollar hit a 10-month low of $1.0046 overnight.

But the yen’s decline hurt South Korean shares, which slid 1.6% on concern that a weaker yen would curb exporters’ competitiveness against their Japanese counterparts, although the dollar’s rise pushed the South Korean won sharply down to a one-week low.

Chinese shares were subdued, with growth-sensitive sectors outperforming despite China’s patchy economic recovery. Hong Kong shares fell 0.2% while Shanghai inched up 0.1%.

A firm dollar capped prices of dollar-based commodities.

London copper eased 0.4% to $7,321.75 a tonne while gold futures lost as much as 1.2% to a low of $1,451.6 an ounce.

Spot gold edged up 0.1% to $1,459.16 an ounce, but was on track for its first weekly fall in three weeks. The first increase since mid-March in SPDR Gold Trust’s exchange-traded fund holdings offered a glimmer of hope for the metal.

"If you look at total gold holdings, not only SPDR, they are still coming down. I won’t be so quick to say that sentiment is changing," Phillip Futures investment analyst Joyce Liu said in Singapore.

US crude futures fell 0.6% to $95.80 a barrel and Brent eased 0.5% to $103.95.

Reuters