Yen weakens and Japan shares advance on BOJ

Sydney - Japanese shares erased losses and the yen weakened after the Bank of Japan (BOJ) upgraded its assessment of the world’s second-largest economy. Gold retreated and treasuries dropped.

Japan’s Topix index erased earlier declines after the central closed a tumultuous year for monetary policy by keeping its yield-curve and asset-purchase programs unchanged.

The yen gave back most of Monday’s advance, and gold halted two days of gains.

The MSCI Asia Pacific Index retreated to the lowest in two weeks and Chinese equities fell to a two-month low as geopolitical concerns intensified after the assassination of Russia’s envoy to Turkey.

Equities have struggled to add to a month-long, post-election rally that took major American benchmarks to records, with investors favouring haven trades again after a bond rout left Treasury yields at the highest since 2014.

The killing of Russia’s envoy and unrelated attacks in Berlin and Zurich added to a sense of geopolitical uncertainty after China last week seized a US naval drone and fighting escalated in Syria.

"Markets are a bit overbought, we’ve seen huge gains since the election of Donald Trump," said Shane Oliver, AMP Capital Investors head of investment strategy, speaking with Yvonne Man and Ramy Inocencio on "Bloomberg Daybreak: Asia."

"At some point we will see a bit of a pullback. The real issues will be tension between the US and China, and of course eurozone breakup risks which will come into focus with various elections across Europe over the next 12 months."

Stocks

The Nikkei 225 Stock Average rose 0.5% at the close, erasing earlier declines before the BOJ decision. The MSCI Asia Pacific Index was down 0.3%, while the Shanghai Composite lost 0.8%.  

Australia’s S&P/ASX 200 Index advanced 0.7% and the Kospi rose 0.2% in Seoul.

The S&P 500 Index rose 0.2% to 2 262.56 in New York, trimming a gain that reached 0.4%. The measure has advanced almost 6% since the November 8 election, while the Dow Jones Industrial Average is up 8%.

Currencies

The dollar climbed 0.6% to ¥117.74, after declining 0.7% in the previous session; the Australian currency was little changed, buying 72.55 US cents.

A broader Bloomberg gauge of the greenback gained for a second day, set for a rally of about 7% this quarter. The euro lost 0.2% to $1.039.

Bonds

Yields on 10-year Australian government bonds fell two basis points to 2.85%, while those on similar-dated New Zealand debt retreated two basis points to 3.42%. Yields on 10-year Treasury notes were up two basis point to 2.56% after dropping five basis points on Monday.

Gold weakened 0.2% to $1 135.41 an ounce, after advancing the previous two days. Oil declined 0.5% to $51.9 a barrel, after climbing 0.4%.

Zinc fell 1%, sliding for a third day.