TOKYO Japanese shares rallied and the yen fell on Monday after Tokyo escaped direct criticism from its G20 peers on its aggressive reflationary plans that have weakened the currency.
"With Japan, as yet, using various measures to ease monetary conditions domestically, we do not expect a large international backlash against its efforts and look for the JPY to continue to decline gradually as the easier monetary conditions feed through into FX," Barclays Capital said in a note to clients.
The G20 declined to single out Tokyo but committed to refrain from competitive devaluations and said monetary policy would be directed only at price stability and growth. Japan said this has given it a green light to pursue its policies unchecked.
Taking their cue from the G20, the Nikkei average opened up 1.3 percent as the yen resumed its downtrend.
The MSCI's broadest index of Asia-Pacific shares outside Japan was nearly unchanged. The pan-Asian index briefly hit a 18-1/2-month high on Friday and had its best performance since the week of January 6 with a 1.2 percent weekly gain.
On Friday, MSCI's all-country world index, a measure of global equity activity, traded down 0.26 percent, while European shares closed lower and U.S. stocks ended flat.
Australian shares rose 0.3 percent as miners gained on hopes that top customer China might start buying after the Lunar New Year holidays, while blue chips Commonwealth Bank of Australia (CBA.AX) and Telstra Corp Ltd (TLS.AX) dropped after trading ex-dividend.
Markets in China and Taiwan resumed trading after a week-long holiday.
In Seoul, the Kospi opened down 0.1 percent, partly weighed by concerns over continued yen weakness that could erode the competitive edge of Korea's exporters.
"There is not much else to go on today except the currency, so everything depends on where the yen goes," said Toshiyuki Kanayama, senior market analyst at Monex.
The dollar rose 0.3 percent to 93.75 yen inching closer to its highest since May 2010 of 94.465 hit on February 11. The euro added 0.1 percent to 125.26 yen, still below its peak since April 2010 of 127.71 yen touched on February 6.
The market's focus is now on Prime Minister Shinzo Abe's nominee for the next Bank of Japan governor. Abe is expected to announce his choice in coming days.
Sources told Reuters that former top financial bureaucrat Toshiro Muto is leading the field of candidates to become the next central bank governor. It is expected that he would intensify stimulus efforts to reflate the economy.
Data from EPFR Global on Friday underscored that a consolidation was underway in global equities after their recent rally. It showed investors worldwide pulled $3.62 billion from U.S. stock funds in the latest week, the most in ten weeks after taking a neutral stance the prior week. But demand for emerging market equities remained strong, with investors putting $1.81 billion in new cash to stock funds, the fund-tracking firm said.
Demand for commodities will likely be in focus as China returns to the market.
Investors are also expected to focus on fiscal talks in Washington, where policymakers are discussing a package of budget cuts set to kick in on March 1. Analysts say the austerity measures could hurt the U.S. economy.
U.S. crude fell 0.2 percent to $95.64 a barrel.
(Additional reporting by Sophie Knight in Tokyo; Editing by Shri Navaratnam)