LONDON The yen resumed falling on Monday after Japan signalled it would push ahead with expansionist monetary policies having escaped criticism from the world's 20 biggest economies at the weekend.
European shares and industrial metals dropped on lingering worries about the economic outlook, especially for the euro zone. The risk of an inconclusive outcome in Italian elections at the weekend also added to investor concerns.
However, activity was curtailed by the closure of markets in the United States for the Presidents' Day holiday.
The yen, which has dropped 20 percent against the dollar since mid-November, fell further after financial leaders from the G20 promised not to devalue their currencies to boost exports and avoided singling out Japan for any direct criticism.
"Future yen direction will continue to be driven by domestic monetary policy from the Bank of Japan and improving international investor confidence, which are both driving the yen weaker," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.
Japan's prime minister Shinzo Abe seized the opportunity to keep pressure on the central bank to loosen policy, telling the Japanese parliament that buying foreign bonds could be among options the Bank of Japan could adopt.
The result was the dollar rising 0.5 percent to 93.98 yen, near a 33-month peak of 94.47 yen set a week ago. The euro rose 0.2 percent to 125.32 yen, roughly midway between Friday's two-week low of 122.90 and a 34-month high of 127.71 yen hit earlier this month.
Strategists said that while the yen was likely to stay weak, its decline could lose momentum as investors wait for more clarity on who will be taking the helm at the Bank of Japan when the current governor steps down on March 19.
"The big unknown is who will get appointed as the new BoJ governor, so it is difficult to put on massive positions beforehand," said Saeed Amen, currency strategist at Nomura.
Abe is poised to nominate the new governor in the coming days. Sources have told Reuters that former financial bureaucrat Toshiro Muto, considered likely to be less radical than other candidates, was leading the field.
Elsewhere in the currency market, sterling hit a seven-month low against the dollar, after a key policymaker made comments about the need for further weakness and recent poor data which has kept alive worries of another British recession.
Sterling fell 0.15 percent to $1.5492 having earlier touched $1.5438, its lowest since July 13.
A big week for data on the outlook for the world's economy weighed on other riskier asset markets following the recent dire fourth-quarter growth numbers for the euro zone and Japan, along with Friday's soft U.S. manufacturing figures.
In European markets, attention is focused on the euro area Purchasing Managers' Indexes for February and German sentiment indices due later in the week. These could affect hopes for a recovery this year.
Analysts expect Thursday's euro area flash PMI indices, which offer pointers to economic activity around six months out, to show growth stabilising across the recession-hit region, leaving hopes for a recovery in the second half of 2013 intact.
Concerns over an inconclusive outcome in the Italian elections on Sunday and Monday have added to the weaker sentiment as a fragmented parliament could hamper a future government's efforts to reform the struggling economy.
The worries about the outlook for Italy were encouraging investors back into safe-haven German government bonds on Monday, with 10-year Bund yields easing 3.6 basis points to be around 1.63 percent.
"Political uncertainty will keep Bunds well bid this week," ING rate strategist Alessandro Giansanti said, adding that only better than expected economic data could create selling pressure on German debt in the near term.
Italian 10-year yields were 7 basis points higher on the day at 4.44 percent.
European equity markets were taking their lead from corporate earnings reports which have been reflecting the sluggish economic conditions across the region.
Danish brewer Carlsberg(CARLb.CO), which generates just over 60 percent of its sales in western Europe, became the latest to report a weaker-than-expected quarterly profit, sending its shares to their lowest level in almost a month.
The 6.8-percent drop for shares in the world's fourth biggest brewery helped send the FTSEurofirst 300 index of top European shares down 0.3 percent at midday. Germany's DAX, France's CAC-40 and UK FTSE-100 ranged between 0.1 percent up and 0.3 percent lower.
Earlier, the effect of the G20 statement and the comments from Abe indicating a renewed drive to stimulate the Japanese economy lifted the Nikkei stock index by 2.1 percent, near to its highest level since September 2008.
MSCI's world equity index was flat as markets extended a two-week period of consolidation that has followed the big run-up in January, when demand was buoyed by the efforts of central banks to stimulate the world economy.
Data from EPFR Global, a U.S.-based firm that tracks the flows and allocations of funds globally, shows investors pulled $3.62 billion from U.S. stock funds in the latest week, the most in 10 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 into stock funds, the fund-tracking firm said.
Euro zone GDP since 2007: link.reuters.com/nyh28s
Central bank balance sheets: link.reuters.com/ged46s
Global equity sector returns: link.reuters.com/jyb29s
In the commodity markets, traders played catch-up after a week-long holiday last week in China, the world's second biggest consumer of many raw materials, which had kept activity subdued, with worries about the economic outlook weighing on sentiment.
Copper, for which China is the world's largest consumer, dipped to a near three-week low of $8,127.50 a tonne on the London futures market. Benchmark tin and nickel also touched three-week lows.
Bargain hunters helped gold rise from a six-month low to be up 0.2 percent to $1,611.87 an ounce with jewellers in China returning to the physical market after the Lunar New Year holiday.
Crude oil markets were mostly steady after some weak U.S. industrial production data on Friday was seen dampening demand, while tensions in the Middle East lent some support.
"We continue to see a mixed picture out of the United States. Industry output was lower than expected but that shouldn't affect the general upward direction," Olivier Jakob, analyst at Geneva-based Petromatrix, said.
Brent crude was flat at $117.66 a barrel after posting its first weekly loss since the first half of January. U.S. crude slipped 19 cents to $95.67.U.S. crude.
(Additional reporting by Marius Zaharia and Ron Bousso. Editing by Philippa Fletcher)