TOKYO Nascent global economic recovery buoyed risk assets from Asian shares to industrial commodities on Wednesday, while the prospect of a dovish new governor for the Bank of Japan sent the yen to a three-year low.
The signs of a recovery taking hold in Europe, the United States and China have helped improve the demand outlook for oil, copper and platinum while a solid reading for euro zone business activity supported the euro.
The slide in the yen bolstered Japanese equities to their highest since October 2008 while expectations of more monetary easing pushed two-year Japanese government bond yields down to a nine-year low of 0.045 percent.
The MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.3 percent, tracking a more than 1 percent gain overnight in the Standard & Poor's 500 Index .SPX and the Nasdaq Composite Index on data showing the U.S. services sector extended a three-year expansion in January.
In Asia, investors have been quick to book profits as prices approached their highs, but analysts and traders say any dip was likely to be seen as a chance to buy back into the market.
The pan-Asian index scaled a 18-month high on Monday, and was up about 2.3 percent so far this year, still modest compared to the S&P's nearly 6 percent gain in the same period.
Australian shares rose 0.8 percent, leading regional peers.
"Investors are positioning themselves for further upside moves while global economic data provides cause for optimism," said Tim Waterer, senior trader at CMC Markets.
Brent crude futures were up 0.1 percent to $116.64 a barrel, while U.S. crude was steady at $96.65, hovering near a 20-week high.
London copper rose 0.3 percent to $8,291.25 a tonne after nearing a four-month high of $8,322, while platinum hit a four-month high of $1,714.75 an ounce.
European markets are seen inching higher, with financial spreadbetters predicting London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX would open flat to up 0.1 percent. A 0.1 percent gain in U.S. stock futures suggested a firm open on Wall Street.
YEN TAKES CENTRE STAGE
Expectations for stronger reflationary policies from the Band of Japan intensified after BOJ Governor Masaaki Shirakawa said he would step down on March 19, three weeks earlier than the official end of his five-year term, leaving at the same time as his two deputies. His decision raised the prospect that the next BOJ governor will more readily adopt the expansionist monetary policy demanded by Prime Minister Shinzo Abe.
The dollar touched 94.075 yen to its highest since May 2010, while the euro also rose to 127.71 yen, its strongest since April 2010. The Aussie reached a 4-1/2 year peak around 97.42 yen. The pound touched a 3-year high near 147.25 yen.
Japan's benchmark Nikkei stock average soared 3.8 percent to close at a 52-month high.
"The momentum in Japan is continuing to favour yen weakening and a risk-on mood," said Stefan Worrall, director of cash equity sales at Credit Suisse in Tokyo.
Despite recent rallies, the Nikkei remains below levels before the 2008 financial crisis while the S&P 500 and Germany's benchmark stock index have both already exceeded that level.
EURO ALSO RESILIENT
The euro was steady around $1.3570, above a key technical support of its 14-day moving average at $1.34653.
The euro drew support from growing confidence in the region's economy and improving funding conditions for deeply-indebted euro zone members.
News the European Central Bank's balance sheet fell to an 11-month low of 2.8 trillion euros as markets unwound some of the ECB's crisis funding measures underpinned the euro, appearing in stark contrast to the U.S. Federal Reserve and the BOJ which keep expanding asset buying.
"Flows matter more than stock in currency markets when comparing central bank balance sheets ... highlighting the euro's outperformance over the last few months," said Ashraf Laidi, chief global strategist at City Index, in a note to clients.
The ECB is expected to keep interest rates unchanged at its policy meeting on Thursday, but its president may face a grilling over an Italian banking scandal.
Spanish and Italian yields fell on Tuesday after jumping on worries over a corruption scandal in Spain and polls showing Italy's former prime minister Silvio Berlusconi regaining ground before elections this month.
The yen's fall lifted benchmark Tokyo gold futures to a record high of 5,067 yen per gram on Wednesday.
(Additional reporting by Thuy Ong in Sydney and Ayai Tomisawa and Sophie Knight in Tokyo; Editing by Sanjeev Miglani and Eric Meijer)