Asian shares pause after rally, yen at 4-year low vs dollar

Japanese equities soar to fresh five-year highs as dollar's break above symbolic 100 yen level underpinned sentiment

Asian shares eased on Friday, taking their cues from global equities which took a breather from recent rallies overnight, but Japanese equities soared to fresh five-year highs as the dollar's break above the symbolic 100 yen level underpinned sentiment.

The dollar extended its gains from Thursday to rise to a fresh four-year high of 100.87 yen earlier this session. It had previously failed to push above the 99.95 yen level it reached in early April as heavy options positions deterred a break through the key level.

Traders could not pin down a single factor that triggered Friday's move, but suspected the rise in the dollar after a weekly US data showed initial jobless claims fell to the lowest level in more than five years may have given an impetus. The jobless claims data followed last week's much stronger-than-expected monthly nonfarm payrolls report for April.

"The market is returning to where it should be, to buying the dollar, mainly driven by the notion that the US economy is on a positive track as seen by the jobs reports," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

"The dollar buying after the initial claims may have been a factor, but failed attempts to break the 100 yen had lightened positions and cleared the way for such a move. The euro's break below $1.3050 also helped remove a cap on the dollar," he said.

Maeba added that the dollar may see a near-term correction to the downside, but the 99 yen level will now signal a buying opportunity and markets may test 102-103 yen in coming weeks.

The dollar was last at 100.58 yen, while the euro was steady around 131.16 yen after hitting its highest in more than three years of 131.75 yen on Thursday.

The Nikkei stock average opened up 1.8%. The yen's drop to 100 level should generate robust earnings for many exporters.

"Many investors have waited for this moment when the yen drops to 100 against the dollar. It raises hopes that exporters will revise up their earnings for the business year," said Yutaka Miura, senior technical analyst at Mizuho Securities.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5%, after climbing to its highest since July 2011 on Thursday. US stocks slipped from record highs on Thursday while the pan-European FTSEurofirst closed flat to stay near five-year highs.

Australian shares were up 0.1% after hitting a five-year high the day before, while South Korean shares opened down 0.5%.

Analysts and traders have said the dollar's direction against the yen from here largely depends on US economic indicators, with a strong outlook for the world's largest economy likely to spur investment flows out of Japan, which is taking aggressive reflationary policies and depressing yields.

Japan's capital flows data on Friday showed Japanese investors bought a net 309.9 billion yen of foreign bonds in the week ending May 4.

The data helped push the dollar higher against the yen.

"The USD strength may prove short-lived unless backed by incoming April US cyclical activity data showing a pickup in growth momentum from the softer tone in March. A series of key US economic data next week, especially retail sales on Monday, will be critical from this perspective," Barclays Capital said in a research note.

US crude futures eased 0.3% to $96.12 a barrel.