Nikkei closes in on 5-1/2 year peak as yen stumbles

Yen falls sharply on back of relatively positive US economic data

Asian shares were in a buoyant mood, with Japanese stocks charging towards a 5-1/2 year peak on Thursday after the yen fell sharply on the back of relatively positive US economic data.

US jobless claims unexpectedly fell last week and the November Thomson Reuters/University of Michigan consumer confidence improved from a preliminary reading, while the Chicago PMI held up better than expected last month after surging in October.

A soft October durable goods report was the only dent to an otherwise upbeat set of figures.

"The US economic data were very pro-tapering, despite the weakness in the durable goods data," Steven Englander, global head of G10 FX strategy at Citigroup, wrote in a note.

Investors are focusing more closely on data as they weigh the odds of when the Federal Reserve is likely to begin dialling back its $85 billion-a-month bond-buying campaign. Many investors expect the Fed will begin tapering in the first quarter of next year if the economy continues to improve.

"On tapering and USD, we have been struck by how much of the market continues to assign a very low probability of a December or January tapering," Englander said.

"Investors are focused on next week's labour market release, but the stronger than expected data suggests that some revision of probabilities is merited even going into the numbers."

The dollar hit a six-month high against of 102.28 yen, adding to a 0.8% gain overnight and edging closer to a 4-1/2 peak of 103.74 yen reached in May.

As the yen tumbled, Tokyo's Nikkei benchmark climbed 1.2% to 15,631.35, closing in on a 5-1/2 year peak of 15,942.60 reached in May.

The Nikkei is up 50% this year in local currency terms, outpacing a 26.7% jump in the US S&P 500 and a 16% rise in the pan-European STOXX 600 index.

Investors have been using the yen as a funding currency for carry trades with the Bank of Japan committed to keeping ultra-loose monetary policy to shore up growth -- a contrast with the Fed which is moving towards a turn in policy.

On Wednesday, BOJ board member Sayuri Shirai said the BOJ should consider expanding monetary stimulus even further if economic and price growth deviates sharply from its projections.

UPBEAT MOOD

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.5%, hitting a one-week high. Still, the Asian gauge is only up 1.6% so far this year, sharply underperforming US, European and Japanese share markets.

In terms of valuations, the Asian index was cheaper than its major developed market rivals. The MSCI Asia-Pacific ex-Japan index carried a 12-month price-to-earnings of 12, versus the S&P 500's 14.9, STOXX Europe 600's 13.5 and Japanese equities' 14.3, according to Thomson Reuters Datastream.

On Wednesday, the Dow Jones industrial average and the S&P 500 closed at record highs while the tech-heavy Nasdaq finished at a 13-year peak. US markets will be closed on Thursday for Thanksgiving.

The euro was steady at $1.3572, having hit a four-week high in the previous session after news that Germany's two major parties had formed a grand coalition.

The Australian dollar climbed 0.5% to $0.9116 on the day, further off a three-month low, after better than expected business investment data reinforced expectations that the Reserve Bank of Australia is unlikely to cut its base rate from the current record low of 2.5%.

"In a year's time, we're probably looking at growth heading back to around 3%, which is more optimistic than what the RBA was expressing," said Shane Oliver, chief economist at AMP Capital Investors.

"Ultimately, it would also be consistent with it leaving rates on hold ahead of a possible rate hike sometime around September or October next year."

Among commodities, US crude prices eased 0.1% to around $92.20 a barrel, adding to a 1.5% slide overnight as a higher than expected build in inventories weighed down prices.

Gold stabilised at about $1,239 an ounce, having fallen 0.4% in the previous session and not far from a four-month low of $1,227.34 touched on Monday.