By Chikako Mogi
TOKYO (Reuters) - Japanese shares jumped closer to a 33-month high as the yen slumped on Monday after Tokyo dodged direct criticism from G20 peers on the 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 dollar soared 0.7 percent to 94.17 yen inching closer to its highest since May 2010 of 94.465 hit on February 11. The euro added 0.3 percent to 125.51 yen, still below its peak since April 2010 of 127.71 yen touched on February 6.
The Nikkei average jumped 2.3 percent as exporters and banks led the pack on the softening yen.
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.
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Sources told Reuters that former top financial bureaucrat Toshiro Muto is leading the field of candidates to govern the bank. He is expected to intensify stimulus efforts to energise the economy.
"The G20's message is that monetary easing is OK, but not to imply anything about leading a currency weaker. 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 eased 0.3 percent on concerns about the eroding competitive edge for the country's exporters.
"Japan will keep seeking the current policy. The rest of Asia will not just wait and see. That will put more pressure on Asian currencies," said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul.
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, Ikeda said.
The MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.2 percent. 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.
On Friday, MSCI's all-country world index, a measure of global equity activity, traded down 0.26 percent, while European shares closed lower and U.S. stocks ended flat.
Australian shares rose 0.5 percent as miners gained on hopes that top customer China might start buying after the Lunar New Year holidays, while blue chips Commonwealth Bank of Australia and Telstra Corp Ltd dropped after trading ex-dividend.
Markets in China and Taiwan resumed trading after a week-long holiday.
STOCKS CONSOLIDATE
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.
Demand for commodities will likely be in focus as China returns to the market.
Investors are also expected to focus on fiscal talks in Washington, where policymakers are discussing a package of budget cuts set to kick in on March 1. Analysts say the austerity measures could hurt the U.S. economy.
U.S. crude fell 0.2 percent to $95.63 a barrel but Brent inched up 0.1 percent to $117.81.
Gold rebounded from a six-month low on Monday as bargain hunters resurfaced and jewellers in China returned to the physical market after the Lunar New Year holiday, but a firm U.S. dollar was likely to limit the upside.
(Additional reporting by Jongwoo Cheon; in Singapore; Editing by Shri Navaratnam and Eric Meijer)