Yen surge squeezes exporters, oil up as dollar slips

By Wayne Cole

SYDNEY (Reuters) - The yen powered to 17-month peaks on Thursday, trampling Japanese exporter stocks in the process, while a broadly soft dollar gave extra legs to a rally in oil prices.

The profit-eroding rise in the yen kept the Nikkei to a slight 0.2 percent gain despite a big bounce in the energy and healthcare sectors. The index has shed more than 7 percent in the past two weeks and weighed on sentiment across Asia.

Markets in China and Taiwan were lower, while MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.5 percent.

In Europe, spread betting firm IG expected opening gains of 0.1 to 0.2 percent for the FTSE 100, DAX and CAC 40.

The yen's lunge higher led a senior Japanese finance ministry official to warn the move had been one-sided and that the ministry would take steps in the market as needed.

Bank of Japan Governor Haruhiko Kuroda also repeated that the central bank would ease policy further if needed, but the market seems to doubt he can do much more.

That is one reason the dollar crumbled to 108.78 yen, lows not seen since late October 2014. The yen's gains were broad based with heavy buying seen against the euro, Swiss franc and Australian dollar.

Traders said being short of yen had been a hugely popular trade early in the year and the currency's surge was squeezing many investors out of those positions.

The dollar was also soft on its own account as minutes from the latest Federal Reserve meeting showed many participants wanted to move cautiously on rate hikes.

Against a basket of currencies, the dollar was pinned at 94.212 and near its lowest since October.

The euro held at $1.1420 and not far from the recent 5-1/2-month peak of $1.1437. The dollar was likewise near a 5-1/2-month low against the Swiss franc at 0.9537 franc.

The drop in the dollar added to gains in oil which jumped 5 percent overnight as U.S. inventories unexpectedly fell and investors gauged the possibility of an output freeze.

Brent crude futures were up 30 cents at $40.14 on Thursday, a marked turnaround from a one-month low of $37.27 hit on Tuesday. U.S. crude rose 36 cents to $38.11. [O/R]

The gains for oil boosted energy stocks and gave Wall Street a lift. The Dow had ended Wednesday 0.64 percent higher, while the S&P 500 gained 1.05 percent and the Nasdaq 1.59 percent.

Aiding risk sentiment were the Fed minutes, which showed many members reluctant to hike further in the face of global uncertainty, a point underlined by Dallas Fed President Robert Kaplan in a speech late on Wednesday.

Elliot Clarke, an economist at Westpac, said "the take home from the March meeting is that, while the Fed remains happy with ongoing progress being made domestically, they are far less certain about the state of the world and its potential impact on the U.S. and the dollar."

"Until such time as confidence in global prospects increases, they are comfortable to hold fire."

Markets have long been wagering the pause will be an extended one with Fed fund futures pricing in a one-in-five chance of a hike in June and just one move by Christmas.

(Reporting by Wayne Cole; Editing by Shri Navaratnam and Richard Borsuk)