Nikkei pauses on profit-taking, yen hits five-year low vs. euro

By Dominic Lau

TOKYO (Reuters) – Japanese stocks paused for breath on Friday after hitting their highest closing level in nearly six years on Thursday, though they are still on track for their best November gain since 1998 as the yen tumbled.

Investors also modestly trimmed their positions in regional equities, with the MSCI Asia-Pacific outside Japan index off 0.1 percent after reaching its highest close in a week on Thursday.

Japan’s benchmark Nikkei slipped 0.3 percent, though it is still up 9.4 percent this month as the yen slump against the euro and dollar.

Investors have been using the yen as a funding currency for carry trades with the Bank of Japan committed to keeping ultra-loose monetary policy to shore up growth — in contrast to the U.S. Federal Reserve which is moving towards unwinding its $85 billion-a-month bond-buying campaign.

The Japanese currency hit a five-year low versus the euro at 139.40 yen, and a six-month trough of 102.41 yen to the dollar.

The yen is down 4.3 percent versus the euro this month, heading for its worst monthly performance since March, while it is off 4.1 percent against the greenback, on track for its biggest one-month fall since January.

Data on Friday showed Japanese consumer inflation accelerated to a five-year high and factory output rose for a second straight month in October, more evidence a recovery in the world’s third-largest economy is on track to extend into 2014.

“Industrial production was good but it was below consensus … Gradually, the market is believing the BOJ will be forced to react against sometimes next year,” said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo.

“A short-term correction might be possible because of funds’ year-end book-closing…fundamentally, there is no reason to short the market, only profit-taking,” he added.

Powered by Tokyo’s aggressive fiscal and monetary stimulus, the Nikkei has rallied nearly 51 percent this year. If the gains were to hold for the rest of this year, it would be the best yearly rise since 1972.

By contrast, the MSCI Asia-Pacific ex-Japan index is up a meagre 1.3 percent so far this year.

The Asian gauge has also sharply underperformed a 26.7 percent jump in the U.S. Standard & Poor’s 500 and a 16.3 percent rise in the STOXX Europe 600 index.

Trading across most markets was light, as U.S. financial markets closed for Thursday’s Thanksgiving holiday and will have half-day session on Friday.

Ahead of the euro zone inflation data later in the day, the euro was steady at $1.3612, having touched a one-month high of $1.3619 in the previous session.

Preliminary German consumer prices harmonised with other European Union countries accelerated in November, suggesting euro zone inflation could come in higher than expected and reducing pressure on the ECB to take further action to avoid deflation.

Among commodities, gold inched down 0.1 percent to around $1,242.8 an ounce, having risen 0.5 percent overnight on signs of physical demand emerged from Chinese buyers.

(Editing by Shri Navaratnam and Eric Meijer)

Nikkei pauses on profit-taking, yen hits five-year low vs. euro