Yen jittery as G20 eyed, weak Europe dampens mood

TOKYO (Reuters) - Weak euro zone growth data dampened sentiment in markets from Asian shares to copper to gold, while the yen was jittery as the G20's Moscow meeting gets underway and speculation builds over candidates to be the next Bank of Japan governor.

Japanese shares extended losses and by far underperformed Asian equities on news that a conservative, former finance ministry bureaucrat is the leading candidate to head the Bank of Japan, which faces heightening market expectations of and political pressure to take dramatic steps to reflate Japan's economy.

The absence of Chinese investors, major buyers of commodities such as copper and gold, sapped trading incentives and capped prices as markets in China and Taiwan remained shut for the Lunar New Year holiday.

"The recent rally in global stocks shows investors are chasing after risk assets and the risk-on sentiment has been turned on, capping assets which are not favored under these circumstances, such as gold," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo .

"The G20's impact on markets, if any, will come through reactions in currency markets. There will be more incentive next week when Chinese investors, big buyers, return," Ikemizu said.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> traded in a wafer-thin range, rising 0.1 percent and falling 0.1 percent. It briefly hit a fresh 18-1/2-month high earlier in the session.

The index, however, was set for a weekly gain of 1.3 percent for its best such performance since the week to January 6. Receding risks from the euro zone debt crisis and evidence that global growth remains on a recovery trend, even if fragile, have generally underpinned risk assets broadly despite day-to-day gyrations.

Stocks in the Philippines <.psi> and Indonesia <.jkse> hovered near records hit the day before while Australian and South Korea shares consolidated from their recent strong gains.

Australian shares ended flat after touching a 4-1/2 year high on Thursday, compounded by weak euro zone data and a $3 billion annual loss from miner Rio Tinto Ltd . South Korean shares <.ks11> also ended nearly flat after Thursday's three-week closing high on the back of a firmer yen.

The Nikkei stock average <.n225> closed down 1.2 percent. <.t/>

European markets will likely pause, with financial spreadbetters predicting London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> would open little changed. U.S. stock futures were down 0.2 percent to suggest a softer Wall Street start. <.l><.eu><.n/>


The yen firmed against other major currencies as investors cut back yen short positions amid speculation that Japan might be singled out because of the yen's steady drop over the past three months.

Many traders and analysts say currencies will be discussed, but yen weakness is unlikely to top the agenda so long as Japan convinces delegates it is pursuing strong monetary easing to reflate the economy, and yen devaluation is a side-effect.

Discussions on drafting a Group of 20 communique are proving "difficult" but the passage on currencies will not single out Japan's expansionist policies, a Russian official said on Friday.

"The prevailing sense from all of the official commentary on currencies this week is that the international community is willing to tolerate a weaker yen so long as Japan continues to focus on domestic policies and probably moderates its rhetoric on the currency," JPMorgan said in a note.

The yen's depreciation has been largely based on expectations for much bolder easing steps to be taken by the new BOJ regime starting next month, and news that Japanese Prime Minister Shinzo Abe is close to selecting his nominee for BOJ governor. News that Toshiro Muto was seen as the leading candidate was taken negatively by Japanese stock market.

"Muto is considered to only follow traditional ways such as expanding asset purchase programs. It would merely be an 'enhanced version of the conventional way'," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

The dollar fell 0.3 percent to 92.54 yen. It marked its highest since May 2010 of 94.465 on Monday. The euro also eased 0.3 percent to 123.59 yen, after scaling its peak since April 2010 of 127.71 yen last week.

London copper was flat but set to log its largest weekly loss this year.

Spot gold fell to a six-week low below $1,630 an ounce.

The euro steadied around $1.3356 after falling to a three-week low of $1.3315 on Thursday as a report showed the 17-nation euro zone economy shrank by 0.6 percent in the last three months of 2012. The bloc's two largest economies, Germany and France, also contracted by more than expected.

With Japanese stocks rising on the yen's weakness, Japanese mutual funds saw the biggest monthly net inflow in 21 months in January as retail investors poured into money reserve funds after locking in profits from rising domestic stocks and equity funds, the Investment Trusts Association said on Thursday.

U.S. crude steadied around $97.27 a barrel and Brent edged down 0.1 percent to $117.86.

(Additional reporting by Ian Chua in Sydney and Ayai Tomisawa in Tokyo; Editing by Eric Meijer)

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