LONDON, Feb 25 (Reuters) - The yen hit a 33-month low
against the dollar on Monday as the prospect of unprecedented
monetary easing in Japan rose, while world shares gained on
hopes other major central banks will maintain or expand stimulus
Japan's currency's resumed its recent slide after reports
that the government would nominate Haruhiko Kuroda, a vocal
advocate of aggressive monetary expansion, to be the next
governor at the Bank of Japan.
A source familiar with the process told Reuters that an
academic critical of central bank efforts to fight deflation
would also be named as one of two new deputy governors.
"Both those candidates are in favour of more aggressive BOJ
easing, and that is weighing upon the yen," said Lee Hardman,
currency economist at Bank of Tokyo Mitsubishi.
The yen hit a low of 94.77 against the dollar, a
level not seen since May 2010, before it recovered to around 94
yen. The euro jumped to a high of 125.36 yen and then
settled at around 124.37, well below a 34-month peak of 127.71
set early this month.
The yen had already fallen around 20 percent against the
dollar over the past three months or so on expectations that
Japan would take more aggressive measures to defeat its
persistent deflation and boost its recession-hit economy.
The developments in Tokyo follow signs the Bank of England
is considering more easing and come after two top U.S. Federal
Reserve officials on Friday defended the central bank's current
Minutes from the Bank of England's policy meeting last week
showed a surprise rise in support for more quantitative easing,
which has prompted analysts to expect the restart of a
bond-buying programme it last used in October.
The growing signals that monetary polices will remain loose
or get easier helped the MSCI world equity index
gain 0.5 percent to 355.40 points after three consecutive weekly
losses as evidence of sluggish global growth mounted.
Investors are now looking ahead to testimony by Fed Chairman
Ben Bernanke to Congress on Tuesday and Wednesday, in which he
is expected to downplay the idea that the central bank could
prematurely end its current massive monthly bond-buying
Another test for equities will come with the looming debate
over massive U.S. government budget cuts that will take effect
on Friday if lawmakers fail to reach an agreement over spending
U.S. stock index futures pointed to gains ahead of
Bernanke's testimony, though there remain some concerns that the
Fed could end its stimulus sooner than many expect.
Earlier the news of Kuroda's likely appointment to the BoJ
lifted Tokyo stocks to a 53-month high, though gains in
other Asian markets were limited by data showing slowing growth
in China's giant factory sector.
HSBC's flash purchasing managers' index (PMI) of Chinese
manufacturers slipped to a four-month low of 50.4 from January's
final reading of 52.3, which had been the best performance since
The flash PMI, however, did indicate a fourth consecutive
month of expansion, even though it only just cleared the 50-mark
separating expansion from contraction.
In Europe attention was on the outcome of the unpredictable
Italian elections, which hold the key to whether the country's
current reform programme will continue uninterrupted.
Opinion polls have suggested the pro-reform, centre-left
Democratic Party could secure a narrow victory in the
recession-hit nation, the euro zone's third-largest economy.
Italy's benchmark index rallied 1.8 percent, and
the buoyant mood helped the FTSEurofirst 300 index of
top European companies rise 0.5 percent, to 1,173.79 points.
Britain's FTSE 100 also rallied 0.7 percent,
shrugging off the loss of the first of the country's triple-A
credit ratings late on Friday, which initially knocked both
sterling and UK government bond prices.
The ratings downgrade by Moody's sent Britain's pound to a
31-month low against the dollar of $1.5073 and a
16-month low against the euro of 87.80 pence.
"This (the downgrade) increases the likelihood we will see
more QE from the Bank of England, although the weakness in
sterling is actually a good thing for the economy," said Don
Smith, an economist at ICAP.
British government June bond futures touched a low of 115.50
, some 56 ticks down from Friday's close as the market
reacted to the ratings loss, but the prospect of future policy
easing helped the market bounce back quickly.
"Now that the UK's triple-A rating has been lost, it
probably makes sense for the Chancellor to ease the pace of
fiscal consolidation in tandem with expansionary monetary policy
that is likely under incoming Bank of England Governor Mark
Carney," said Tristan Cooper, sovereign debt analyst at Fidelity
Signs of ongoing or expanded monetary easing by global
central banks helped lift oil prices, though worries that the
slide in China's manufacturing activity would dent demand from
the world's top energy consumer capped gains.
Brent crude gained $1.66 a barrel to $115.76, having
hit a low of $113.73 when the Chinese data emerged. U.S. oil
rose 82 cents to $93.95 after an earlier low of $92.96,
near Friday's more than one-month trough of $92.44.
Investors in the gold market preferred to ignore the
Chinese data and snap up the precious metal after last week's
drop to a seven-month low, though the market was cautious ahead
of the outcome of the Italian elections. Spot gold rose 0.6
percent to $1,589.14 an ounce.