Asian shares frozen in Fed headlights, yen skids

Asian markets were jittery on Friday as investors fret over the outlook for U.S. policy stimulus, though Japanese stocks drew some comfort from a reversal in the yen which slid to a seven-month trough on the dollar.

Any drop in the yen tends to be viewed as a positive for Japanese exports and corporate profits, and thus for the stock market. The Nikkei responded by edging up 0.3%, following three straight sessions of losses.

Other share markets in Asia took their lead from a soft finish on Wall Street. MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.2% in early trade, while Korea's KOSPI dipped 0.5%.

The latest tremors came after upbeat data on U.S. retail sales heightened speculation the Federal Reserve might start trimming its asset buying as early as next week, while prompting analysts to boost forecasts for economic growth.

"I suspect strong data will be a minor negative for risk appetite, as Fed taper concerns prevail over the obvious growth positives," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.

Which was why Wall Street reacted by shoving the Dow down 0.66% and the S&P 500 down 0.38%. At the same time, yields on 10-year Treasury debt popped back up to 2.88% and gave the U.S. dollar a lift.

"From a U.S. dollar perspective this is at best only a mild positive, best played through yen and the usual emerging market suspects," added Ruskin. "The muted market reactions suggest nobody would be terribly surprised with a December taper, even if the street has yet to reach a consensus on timing."

The Fed meets on Tuesday and Wednesday and, while much of the market still thinks it will wait until January or March, the decision on tapering is likely to be a very close call.

YEN BACK ON THE SKIDS

The rise in U.S. bond yields helped the dollar recoup all the losses suffered early in the week to touch a seven-month peak on the yen at 103.66. The next target is the 2013 top of 103.74, and a break would take the dollar to territory not visited since late 2008.

The euro also gained on the yen to reach a five-year high at 142.51 yen. The single currency took a breather against the dollar, easing a touch to $1.3748.

Some currencies in Asia have also been losing ground amid concerns an eventual tapering by the Fed will draw capital away from their markets.

Indonesia's rupiah hit a near five-year low of 12,040 per dollar, while the Malaysian ringgit and the Indian rupee also lost ground.

Another casualty was the Australian dollar, which sank a U.S. cent to $0.8927 after the head of the country's central bank reiterated his desire for a lower currency.

Reserve Bank of Australia (RBA) Governor Glenn Stevens confirmed that he would rather see any further easing in domestic financial conditions come through a drop in the Aussie, rather than a cut in interest rates.

The central bank has for months been running a verbal campaign to get the currency down to support trade-exposed sectors of the economy.

In commodity markets, the higher U.S. dollar weighed on gold. It skidded to $1,226.70 an ounce and away from the week's top at $1,267.26.

Brent oil futures fell below $109 a barrel on the possible reopening of major Libyan ports this weekend and expectations that the Fed may soon start unwinding its stimulus.

Brent crude oil fell $1.11 to $108.59 a barrel. U.S. crude futures for January delivery were off 13 cents at $97.37 a barrel.