Japan shares flying high in Asia as yen downed

Japanese stocks scaled six-month peaks on Friday as the yen took a spill, though other Asian markets lagged behind as investors become resigned to an inevitable slowdown in US stimulus.

Tokyo's Nikkei put on 0.7 percent, making a meteoric 10 percent rally in just 11 sessions and setting the scene for a re-test of its 2013 peak at 15,942.

The Nikkei and the yen have been dancing in counter step for months, with every rally in the former a signal for speculators to dump the yen. A lower currency then promises to boost Japanese exports and earnings, so further supporting shares.

So the US dollar spiking above 101.20 yen for the first time since July was a clear green light to buy shares. The euro also climbed as far as 136.45 yen, highs not seen since October 2009.

"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 2.79 percent, compared to 0.63 percent 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 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.

That view helped the Dow Jones industrial Average up 0.69 percent on Thursday, while the S&P 500 sped 0.81 percent higher.

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 and could weigh on regional markets such as Indonesia and the Philippines.

Australian shares bounced 1 percent, but that came after a four-session losing streak.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up a modest 0.3 percent on Friday, after shedding 1.4 percent on Thursday. Likewise, MSCI's world equity index rose just 0.1 percent on Thursday.

OIL MAKES A COMEBACK

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 single currency up to USD 1.3475, from a one-week low of USD 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 currency 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 $0.9231.

In commodity markets, Brent crude oil held at USD 110.07 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 US 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.

US oil was off 18 cents early Friday, but that followed a rise of USD 1.59 overnight.