By Dion Rabouin
NEW YORK (Reuters) - The yen surged on Thursday after the Bank of Japan surprised markets by declining to boost its stimulus, battering Japanese stocks and briefly weighing on markets in the United States and Europe.
The yen surged against the dollar, euro and sterling, putting it on course for its biggest jump against the dollar since February and its biggest gain in five years against the two European currencies.
The BOJ's move to hold steady in the face of soft global demand and a sharp rise in the yen was particularly jarring for markets after earlier media reports said the bank intended to cut interest rates deeper into negative territory.
Tokyo's Nikkei stock index slumped 3.6 percent.
"I think the odds of (monetary easing) were half and half, but the most surprising point is that the markets seemed to have been surprised," said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo.
"The most important point is that BOJ, especially (BOJ head Haruhiko) Kuroda, would like to save its weapons and power for an emergency."
The Tokyo Stock Exchange will be closed for a national holiday on Friday and the benchmark Nikkei index ended the shortened trading week down 5 percent.
U.S. stock markets opened lower, but rebounded, bolstered by strong results from Facebook and a flurry of dealmaking.
Facebook hit an all-time high of $120.79 a share after the company said Wednesday that quarterly ad revenue jumped 57 percent. Its shares were last up 9.1 percent at $118.77.
St. Jude Medical soared 27.5 percent after Abbott Laboratories said it agreed to buy the medical device maker for $25 billion. Abbott was down 5.6 percent.
The Dow Jones industrial average fell 11.47 points, or 0.06 percent, to 18,030.08, the S&P 500 gained 3.9 points, or 0.19 percent, to 2,099.05 and the Nasdaq Composite added 24.92 points, or 0.51 percent, to 4,888.06.
The pan-European FTSEurofirst 300 rose 0.1 percent, recovering from earlier losses after the BOJ decision on the back of gains in materials and energy stocks.
Longer-dated U.S. Treasury prices fell as inflation grew faster than expected in the first quarter to above the Federal Reserve's 2 percent goal, eroding the appeal of holding long-term assets.
Short maturities held steady on the view the Fed is in no hurry to raise rates following the U.S. central bank's latest policy statement on Wednesday.
The core rate of personal consumption expenditures, the Fed's preferred inflation gauge, rose 2.1 percent in the first three months of 2016, stronger than the 1.9 percent forecast among economists polled by Reuters.
The dollar was lower, falling to a two-and-a-half week low against a currency basket, weighed down by the strong move by the yen and gains in commodity-linked currencies such as the Australian and New Zealand dollars.
Crude futures rose to 2016 highs for a third day in a row, bolstered by the weakening dollar as investors looked beyond record high U.S. crude inventories and relentless pumping by major producers to the prospect of future demand.
Oil prices have risen 75 percent since hitting 12-year lows of around $27 a barrel for Brent in late January and about $26 for U.S. crude in mid-February.
Brent futures rose 55 cents to $47.59 a barrel, touching a year-to-date high at $47.73. U.S. crude was up 27 cents to $45.60.
(Reporting by Dion Rabouin; Additional reporting by Richard Leong and Barani Krishnan in New York and Joshua Hunt in Tokyo)
