Yen firmer but near lows, Asian shares capped

TOKYO (Reuters): The Yen remained near recent lows on Tuesday, as attention turned to the appointment of a new Bank of Japan Governor.

Regional share markets held to tight ranges as the absence of catalysts and a holiday in the US overnight capped demand.

The Yen, which has dropped 20% against the Dollar since mid-November, fell further at the start of the week after financial leaders from the G20 promised not to devalue their currencies to boost exports and avoided singling out Japan for any direct criticism.

The choice of the next BOJ Governor and two deputies has drawn market attention as a gauge to how strongly Prime Minister Shinzo Abe, is committed to re-flatting the economy.

The G20’s message was that as long as Japan pursues aggressive monetary easing to achieve that goal, a weaker Yen as a result of such domestic monetary policy will be tolerated, analysts say.

“But that means that some other economy’s monetary conditions have been tightened,” said Barclays Capital in a note.

“Japan hasn’t even changed its policy stance thus far, and the effect of expectations of a looser setting have led to limited moves in domestic interest rates, but the sell-off of the JPY has been marked and has clearly caused unease in other economies.”

Market reaction was muted to the release of the minutes of the BOJ’s 21-22 January meeting, when the bank set a 2% inflation target and pledged to an open-ended quantitative easing from 2014, but the Yen was bought when Finance Minister Taro Aso told reporters Japan has no plans to buy foreign currency bonds as part of monetary easing, a trader said.

The Dollar was down 0.2% to 93.75 Yen, but remained near its highest since May 2010 of 94.465 hit on

11 February.

The Euro also eased 0.3% to 125.05 Yen, below its peak since April 2010 of 127.71 Yen touched on 6 February.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was nearly flat.

The Nikkei stock average opened down 0.6%, after closing up 2.1% on Monday to approach its

highest level, since September 2008 of 11,498.42 tapped on 6 February.

Australian shares inched down 0.1% on the back of weakness in metals prices, with investors focusing on local corporate earnings for direction after a three-month rally that has taken the market to 4-1/2 year highs.

Seoul shares opened little changed, and were expected to struggle to find momentum on worries about the weak Yen.

“The market has been taking a breather recently after staging a recovery earlier this month,” an analyst at Tong Yang Securities in Seoul Lee Jae-man said. “The weaker yen has been priced in to some extent, and the pace of its fall is expected to slow down.”

Disappointing earnings pushed European shares lower on Monday for a third straight session of losses while US markets were closed for the President’s Day holiday.

The Euro was steady around US$ 1.3348. The currency eased slightly on Monday after European Central Bank President Mario Draghi said, in a speech at the European Parliament that “The exchange rate is not a policy target but is important for growth and price stability” and that its rise is ‘a risk’.

The risk of an inconclusive outcome in Italy’s Election this weekend added to investor concerns.

Sterling hovered near a seven-month low against the dollar touched on Monday after a key policymaker

made comments about the need for further weakness, while recent poor data has spurred worries of another British recession. United States crude fell 0.4% to US$ 95.47 a barrel.