Japan stocks eye 2013 peak as dollar breaks above 101 yen

Saturday, 23 November 2013 00:00 - - {{hitsCtrl.values.hits}}

REUTERS: 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 US stimulus.

Tokyo’s Nikkei rallied more than 1% but succumbed to profit-taking late in the session to finish 0.1% higher. Still, it is up nearly 10% 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 to open up as much as 0.5%. 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 US 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 US Treasury yields was expanding the dollar’s rate advantage over the yen, Ruskin added. Yields on 10-year Treasuries were at 2.78%, compared to 0.65% for JGBs. “Both sides of the USD/JPY equation are working in favour 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 US 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 US 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 and weighed on regional markets such as the Philippines and India. Australian shares bounced 0.9%, but that came after a four-session losing streak. South Korea climbed 0.6%, while Hong Kong advanced 0.5%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3% on Friday, after shedding 1.4% on Thursday.