Yen still in focus, Asian shares rise on Wall Street

(Reuters) - The yen fell to fresh multi-year lows and Japanese stocks extended gains on Tuesday as effects of the Bank of Japan's aggressive reflationary campaign reverberated through markets, while Asian equities drew support from a solid start to the U.S. quarterly earnings season.

Benign Chinese inflation data also boosted sentiment as it kept hopes that an expansive monetary stimulus will stay in place to support the world's second-largest economy, but escalating tensions in the Korean peninsula took a toll on South Korean shares and its currency.

 

The MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.8 percent, led by Australian shares .AXJO which gained 1.3 percent on rises in blue chip financials and miners.

"It's hard to say which direction the market will go but I think near term the biggest catalysts will be the results from the U.S. earnings season," said Haris Khaliqi, research analyst at Foster Stockbroking.

Alcoa Inc (AA.N), the largest U.S. aluminum producer, kicked off U.S. earnings on Monday, reporting an increase in quarterly profit on Monday and easing concerns about corporate results in the first three months of 2013.

Earnings forecasts have been scaled back heading into the first-quarter reports, with S&P 500 company earnings seen up just 1.6 percent from a year ago, according to Thomson Reuters data, down from a 4.3 percent forecast in January.

South Korean shares .KS11 were the sole exception to the regional equity rally, falling 0.5 percent, while the South Korean won briefly dipped to a fresh 8-month low of 1,145.3 per dollar earlier.

North Korea suspended its sole remaining major project with the South on Monday, the Kaesong industrial park, amid speculation that it will take some sort of provocative action - another nuclear weapons test or missile launch - in what has become one of the most serious crises on the peninsula since the end of the Korean War in 1953.

China's annual consumer inflation eased to 2.1 percent in March from February's 3.2 percent while producer price deflation deepened, data showed on Tuesday.

"The lower inflation will greatly ease investors' concerns that policymakers would begin to tighten monetary conditions," said Haibin Zhu, chief China economist at JPMorgan Chase in Hong Kong.

The Australian dollar rose to a high of $1.0448 from around $1.0424, before drifting back. Australian assets are sensitive to economic indicators out of China, as it is Australia's largest export destination.

JAPAN STILL LEADS

The yen was expected to stay under pressure, while Japanese shares were seen garnering sustained support from the unprecedented scale of the stimulus unveiled late last week by the new BOJ Governor Haruhiko Kuroda.

Japan's Nikkei stock average .N225 rose 0.5 percent, after jumping as much as 3.1 percent to its highest since August 2008 earlier on Monday. .T

"Kuroda's done a commendable job of letting the market know he is not fooling around. He is certainly not shackled by economic theories," said David Baran, co-founder of Tokyo-based hedge fund Symphony Financial Partners.

He expected Japan's markets to perform in a similar way to U.S. markets after the U.S. Federal Reserve first opted for quantitative easing four years ago with an asset buying program. Both the Standard & Poor's Index .SPX and the Dow Jones industrial average .DJI have hit all-time highs during the last couple of weeks.

The Nikkei, currently at around 13,260, remains far below a lifetime high of 38,915.87 notched on December 29, 1989.

Early in Asia on Tuesday, the dollar hit its highest since May 2009 of 99.65 yen while the euro climbed as far as 129.72 yen, its highest since January 2010. The Aussie dollar soared to 103.78 yen, the highest since July 2008.

Traders expect the dollar to trade at 100 yen as soon as this week, as the effects of the BOJ's latest move reverberate through markets.

"Markets are increasingly focused on the notion that larger JGB purchases at longer maturities by the BOJ could push Japanese domestic long-term investors elsewhere," said Vassili Serebriakov, strategist at BNP Paribas.

A sharp decline in Japanese government bond yields across the curve has stirred speculation Japanese investors will turn to higher-yielding assets elsewhere, pushing sovereign bond yields lower in the United States and the euro zone.

Concerns over the euro zone were offset by sharp falls in yields of Spain and Italy due to demand for higher-yielding euro zone bonds from Asia after the BOJ plan.

U.S. crude futures were up 0.2 percent to $93.57 a barrel and Brent rose 0.4 percent to $105.04. <O/R>

Growth in developing Asia is seen gaining momentum this year, powered by rising domestic consumption and intra-regional trade, but authorities need to ward off risks of inflation and asset bubbles arising from strong capital inflows, the Asian Development Bank said in its latest regional outlook report for 2013.

Firmer stocks underpinned risk appetite in Asian credit markets, tightening the spread on the iTraxx Asia ex-Japan investment-grade index by 3 basis points.

(Additional reporting by Ian Chua in Sydney and China Economics Team in Beijing Thuy Ong in Sydney; Editing by Simon Cameron-Moore)