Asian shares pause, yen volatile as Bank of Japan meeting eyed

TOKYO (Reuters) - Asian shares held steady on Monday after surging to multimonth highs last week, while the yen firmed after touching a new low in choppy trade ahead of a Bank of Japan policy meeting this week that is expected to yield bold monetary easing measures.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> was steady after earlier easing as much as 0.3 percent. The index closed at a 17-1/2-month high on Friday as upbeat U.S. and Chinese data lifted sentiment.

Australian shares <.axjo> inched up 0.1 percent while South Korean shares <.ks11> recouped earlier losses but remained capped as a stronger local currency hurt exporters.

The focus in Japan was on the BoJ, which starts its two-day policy meeting on Monday under growing political pressure to pursue bolder measures to beat deflation, with speculation ranging from an open-ended commitment to buy assets until a 2 percent inflation target is achieved to simply boosting its asset buying schemes.

Early on Monday, the dollar touched a fresh 2-1/2-year high of 90.25 yen, and the euro rose to a high of 120.27 yen, near its peak since May 2011 of 120.73 hit on Friday.

But the yen clawed back some of its losses against the dollar and the euro. The dollar slipped back to a low of 89.42 yen and was last trading at 89.66 yen, while the euro also fell to a low of 119.08 and last traded at 119.44 yen.

"Profit taking pushed the dollar and the euro down against the yen but short covering lifted them off their lows. Trading is thin and quite volatile. I don't think there will be any clear direction until the BoJ decision," said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo.

Saito said "sell the fact" behavior could push the dollar down about 1 yen, but a serious disappointment on the BoJ outcome was unlikely.

The correction to the yen's years of excessive strengthening is now spurring adjustments to currencies such as the Korean won. A firmer won weighed on the Korea Composite stock Price Index <.ks11>, held back by exporters, and capping it near levels unchanged from Friday.

"Concern over the weakening yen appears to be playing a large part as the main board (Kospi) continues to underperform compared to Asian peers due to foreign selling," said Kim Joong-won, an analyst at NH Investment & Securities in Seoul.

Tokyo's benchmark Nikkei average <.n225> also slipped 0.9 percent as investors booked profits from the Nikkei's 2.9 percent rally on Friday, its biggest daily gain in 22 months. The Nikkei posted a 10th straight week of gains, its longest since 1987. <.t/>

Many investors largely keep short position on the yen.

"We expect the door for further easing will likely be left open irrespective of the outcome of BoJ policy meeting, either explicitly by the BoJ or implicitly through government's plan to nominate doves to replace the governor and deputy governors," Barclays Capital said in a note to clients.

Friday's data showed while currency speculators slightly cut their bets against the yen in the week to January 15, they remained overwhelmingly negative on the currency.


The steady showing in Asia equities followed a rise in global equities late last week when signs Washington may avert a fiscal crisis helped improve sentiment.

Republicans said the House will consider a bill to raise the U.S. debt ceiling enough to allow the country to pay its bills for another three months. The strategy would buy time for the Democratic-controlled Senate to pass a budget plan that shrinks the federal deficit.

The Dow Jones industrial average <.dji> and the Standard & Poor's 500 Index <.spx> ended Friday at five-year highs on a solid start to the quarterly earnings season. U.S. markets are closed on Monday for the Martin Luther King Jr. holiday.

Oil prices, however, took their cues from a weak consumer sentiment report in the United States, which showed a drop to the lowest in a year in January as a result of the uncertainty surrounding the country's debt crisis. Concerns about demand overshadowed supply disruption fears, reinforced by the Islamist militant attack and hostage-taking at a gas plant in Algeria, a member of the Organization of Petroleum Exporting Countries.

U.S. crude futures fell 0.4 percent to $95.21 a barrel while Brent fell 0.3 percent to $111.60 early on Monday.

(Additional reporting by Ian Chua in Sydney and Joyce Lee in Seoul; Editing by Shri Navaratnam)

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