Asian markets find comfort in US Fed outlook, yen eases

Asian share markets found reassurance in the prospect of extended US monetary stimulus on Friday, while a falling yen had Japanese stocks gunning for their biggest weekly increase in almost four years.

The Nikkei jumped 1.3% early Friday to bring its gains for the week so far to a heady 6.9%, its best performance since December 2009. It also cracked major chart resistance around 15,000, which opened the way for a return to the May peak at 15,942.60.

Shares outside Japan trailed behind with MSCI's broadest index of Asia-Pacific shares inching up 0.3%. Australian stocks were steady amid a new twist in a takeover battle for a local dairy company.

Wall Street reached record highs on Thursday after the presumptive head of the Federal Reserve, Janet Yellen, robustly defended the central bank's bold steps to spur economic growth, calling efforts to boost hiring an "imperative" at a hearing into her nomination.

The Dow ended 0.35% higher, while the S&P 500 gained 0.48%. The Nasdaq was restrained by Cisco Systems Inc after disappointing results knocked 10% off its share value.

"Yellen still believes the benefits of QE outweigh the costs-- a little tidbit that could have been the most important thing she said market-wise," said William O'Donnell, chief US government bond strategist at RBS Securities in Stamford, Connecticut.

"She did not strike me, or our economics squad, as somebody ready to roll back on QE3 and that even another 200,000-plus print in the next nonfarm payroll number may not sway her."

One result is that the Fed finally seems to be convincing markets that even if it does taper, an actual increase in the official funds rate will still be distant. Short-term debt markets rallied hard as investors pushed the timing of the first hike far into the future.

Indeed, there has been a radical reappraisal on the outlook for tightening since the Fed skipped a chance to start tapering in September. Back then futures on the Fed funds rate had implied a first hike in late 2014. Now a move to 0.5% is not fully priced in until November 2015.

In just the past couple of days Eurodollar futures have rallied so sharply that they now predict the cost of borrowing dollars will stay near zero out to 2016.

That in turn has helped drag down Treasury yields, with rates on two-year notes at just 29 basis points compared to a peak of 54 in early September.

Yen Gives Ground

For once the decline in yields did not trouble the US dollar too much, in part because rates in Europe were falling even more following another disappointing economic report.

Data showed the euro zone only just emerged from recession in the third quarter with growth of a miserly 0.1% as France contracted.

The euro was off at $1.3450 after getting as high as $1.3497 on Thursday.

Neither were there any signs the Bank of Japan would be diverted from its massive stimulus efforts with data showing the economy slowed markedly last quarter as consumers and businesses proved reluctant to spend.

Yen bears also got traction on Thursday after Finance Minister Taro Aso told a parliamentary committee Japan must retain currency intervention as a policy tool.

The dollar has been making steady gains on the yen for three weeks now to finally breach the 100.00 barrier. Early Friday, it was enjoying the view at 100.15 yen, having bounced from a low of 99.11 on Thursday.

In commodity markets, Brent crude oil rose a second straight day on Thursday on worries about crude supply disruptions in Libya, while gold drew some comfort from the prospect of continued US stimulus.

Brent for December delivery rose $1.39 to settle at $108.51 a barrel on Thursday. US crude was up 25 cents at $94.01 a barrel.

Spot gold edged up to $1,286.54 an ounce and away from the week's trough of $1,260.89.