Japanese shares surged 2.1 percent on Monday and were on the brink of revisiting four-year highs tapped recently, as the yen slumped after Tokyo dodged direct criticism from G20 peers on its aggressive reflation plans that have weakened the currency.
The G20 opted not to single out Tokyo, but committed members to refrain from competitive devaluations and said monetary policy would be directed only at price stability and growth. Japan said this decision is a green light to pursue its expansionary policies.
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 on Friday that former top financial bureaucrat Toshiro Muto is leading the field of candidates to govern the bank. He may intensify stimulus efforts to energise the economy but might not pursue unconventional easing measures.
"The G20 basically gave tacit approval for currency weakening as a result of monetary easing, and not intervention. So that puts focus on what the BOJ will do next. As long as the BOJ shows its seriousness about stamping out deflation, the yen's decline will likely be tolerated," said Citibank Japan chief FX strategist Osamu Takashima.
The dollar gained 0.5 percent to 93.97 yen inching closer to its highest since May 2010 of 94.465 hit on February 11. The euro added 0.3 percent to 125.34 yen, still below its peak since April 2010 of 127.71 yen touched on February 6.
The Nikkei average <.N225> closed up 2.1 percent as exporters and banks led the pack on the softening yen, after surging as much 2.4 percent earlier to come close to its highest level since September 2008 of 11,498.42 tapped on February 6. <.T>
"The G20 effect is already seen in Abe's general comments on forex today which steered away from giving specifics on a preferred level or direction for the yen," said Yunosuke Ikeda, a senior FX strategist at Nomura Securities.
Abe said on Monday that the BOJ's monetary easing is aimed at beating deflation, not at manipulating the forex market and weakening the yen, and said correcting excessive yen rises would be an appropriate policy direction. Previously, Japanese officials have noted that the current yen selling was a correction to the past excessive yen strength.
The yen's weakness weighed on emerging Asian currencies while South Korean shares <.KS11> eased 0.3 percent on concerns about the eroding competitive edge for the country's exporters.
Japan will keep pursuing its current policy, said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. "The rest of Asia will not just wait and see. That will put more pressure on Asian currencies," he said.
A weaker yen would make other currencies relatively stronger against the dollar and fuel speculation that other Asian countries could step in to curb the strength of their currencies, Nomura's Ikeda said.
The MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> paused, after moving in a narrow range. 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.
Australian shares led the pan-Asian index with a 0.6 percent rise as a string of earnings reports supported a view that the local economy was in better-than-expected shape.
Markets in China and Taiwan resumed trading after a week-long holiday.
Indonesian stocks <.JKSE> inched up 0.1 percent after setting a record high for a fifth straight session on Friday, while shares in Thailand <.SETI> were up 0.2 percent as the country's economy grew a robust 3.6 percent in the fourth quarter from the previous three months.
European markets may track lower, with financial spreadbetters predicting London's FTSE 100 <.FTSE>, Paris's CAC-40 <.FCHI> and Frankfurt's DAX <.GDAXI> would open down 0.1 percent. U.S. stock futures were barely changed. U.S. markets will be closed on Monday for the President's Day holiday. <.L><.EU><.N>
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 into stock funds, the fund-tracking firm said.
Commodities markets awaited clues on demand from China, the top consumer.
"China's overall economy is still strong, so the appetite for base metals after Chinese New Year will gradually pick up," said Helen Lau, senior commodity analyst at UOB-Kay Hian in Hong Kong.
London copper fell 0.4 percent to $8,170 a tonne as traders played catch up after a week-long holiday in China, with worries about the euro zone economy weighing on sentiment.
U.S. crude fell 0.2 percent to $95.68 a barrel but Brent inched up 0.1 percent to $117.82.
Gold rebounded from a six-month low on bargain hunting and as jewellers in China returned to the physical market after the Lunar New Year holiday.
(Additional reporting by Jongwoo Cheon; and Melanie Burton in Singapore; Editing by Shri Navaratnam and Eric Meijer)