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Stocks punished as inflation shadow spooks bonds

Asian shares fell the most in over a year on Monday as fears of resurgent inflation battered bonds, toppled Wall Street from record highs and sparked speculation that central banks globally might be forced to tighten policy more aggressively.

MSCI's broadest index of Asia-Pacific shares outside Japan shed as much as 2 percent in the largest daily drop since late 2016. It was last down 1.4 percent.

E-Mini futures for the S&P 500 fell another 0.2 percent, suggesting further losses in U.S. markets later in the session. Dow futures slipped 0.4 percent while FTSE futures lost 1.1 percent.

Asian markets were covered in a sea of red, with every single bourse but one stumbling. China's Shanghai Composite index gave up early losses to be up 0.5 percent. Japan's Nikkei sank 2.2 percent, while Australia's main index lost 1.6 percent and Hong Kong's Hang Seng index declined 1.4 percent.

Investors were spooked by Friday's U.S. payrolls report which showed wages growing at their fastest pace in more than 8-1/2 years and fuelling inflation expectations.

Futures markets reacted by pricing in the risk of three, or even more, interest rate rises from the Federal Reserve this year.

"The prospect of rising inflation and tighter central bank monetary policy is finally seeing a normalization of yields in sovereign bond markets," said Matthew Peter, Brisbane-based chief economist at Australian state pension fund QIC.

"Equity markets are responding as anticipated and are correcting as interest rates rise particularly in the United States, which has been the major equity market with most stretched valuations."

Yields on 10-year U.S. Treasury paper were up at a four-year peak of 2.86 percent, having jumped almost 7 basis points on Friday.

The 2-year yield was near a nine-year top at 2.162 percent, tightening financial conditions and offering a more competitive return compared to equities. The dividend return of the Dow, for instance, was 2.13 percent.

Faster rate rises by the Fed would be negative for emerging markets and commodity currencies, said Deutsche Bank (DE:DBKGn) macro strategist Alan Ruskin.

Both the Australian and New Zealand dollars fell sharply in the wake of the job numbers, along with a range of Asian currencies. [AUD/]

PRICED FOR PERFECTION

Wall Street had already been flashing expensive by many historical measures and sold off in reaction.

"It has to be remembered that U.S. shares were priced for perfection at around 19 times earnings," said Craig James, chief economist at fund manager CommSec, noting the historic average is around 15 times.

"Still, U.S. companies have produced stellar earnings over the reporting period. So it is understandable that some 'irrational exuberance' would emerge."

With half of the S&P 500 companies having reported, 78 percent have beaten expectations against an average 64 percent.

Chris Weston, chief market strategist at broker IG, noted the sudden spike in volatility caused some rules-based funds to automatically dump stock as their models required.

"There is talk that volatility targeting annuity funds could have to sell a further $30 billion of stock this week and another $40 billion should realized volatility not retreat lower," he warned.

The lift in U.S. yields provided some initial support to the dollar after a rocky start to the year, though it was starting to lose altitude again in Asian trade.

Against a basket of currencies, the dollar was down a fraction at 89.123 having climbed 0.6 percent on Friday for its biggest single day gain in three months.

The dollar backed off to 109.95 yen from an early 110.29, while the euro was barely changed at $1.2461.

Any rally in the U.S. dollar is considered a negative for commodities priced in the currency, with the Thomson Reuters CRB index down 0.5 percent. Gold was off a touch at $1,332.04 an ounce after losing 1 percent on Friday.

In oil markets, U.S. crude fell 53 cents to $64.92 a barrel, while Brent lost 61 cents to $67.97. [O/R]

U.S. oil prices extend gains on compliance with output cuts

Oil rose for a third day on Friday after a survey showed strong compliance with output cuts by OPEC and others including Russia, offsetting concerns about surging U.S. production.

Brent futures, the global benchmark, were up 24 cents, or 0.3 percent, at $69.89 a barrel by 0635 GMT.

U.S. West Texas Intermediate (WTI) crude was up 33 cents, or 0.5 percent, at $66.13 a barrel.

Production by the Organization of the Petroleum Exporting Countries (OPEC) rose in January from an eight-month low as higher output from Nigeria and Saudi Arabia offset a further decline in Venezuela and strong compliance with a supply reduction pact, a Reuters survey showed. [OPEC/O]

OPEC pumped 32.4 million barrels per day (bpd) in January, the survey found, up 100,000 bpd from December. Last month's total was revised down by 110,000 bpd to the lowest since April 2017.

Even so, adherence by producers included in the deal to curb supply rose to 138 percent from 137 percent in December, the survey found, suggesting commitment is not wavering even as oil prices hit their highest level since 2014.

"It underscores the commitment of the cartel, and their Russian partners, to keep a floor under the oil price," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

That is drawing investors' focus away from the rise in U.S. production.

U.S. crude output surpassed 10 million bpd in November for the first time since 1970, the Energy Information Administration said this week.

Wall St. pulls back from earlier gains as bond yields rise

U.S. stocks pulled back from earlier gains on Thursday as bond yields rose and technology stocks retreated ahead of a host of high-profile earnings.

It has been a rocky week for Wall Street. Mostly robust earnings have been met by rising bond yields as world central banks back away from easy monetary policy.

On Wednesday, the Federal Reserve held interest rates steady but indicated a more hawkish inflation outlook.

"The selloff is just letting steam out of the kettle," said Stephen Massocca, managing director at Wedbush Securities in San Francisco. "Even after proposed policy changes, we still have an (accommodative) monetary policy."

U.S. Treasury yields rose further after economic indicators seemed to confirm the Fed's inflation outlook.

Initial claims for unemployment benefits fell unexpectedly last week, indicating a tight labor market.

Separately, ISM data showed prices paid by U.S. factories hitting a near 7-year high, and fourth-quarter labor costs rose by 2 percent.

The Dow Jones Industrial Average (DJI) rose 36.32 points, or 0.14 percent, to 26,185.71, the S&P 500 (SPX) gained 2.01 points, or 0.07 percent, to 2,825.82 and the Nasdaq Composite (IXIC) dropped 3.27 points, or 0.04 percent, to 7,408.21.

Banks, which benefit from higher interest rates, led the S&P 500 financials (SPSY) to a 0.8 percent gain.

Other notable stock movers included eBay (O:EBAY), up 15.1 percent after its earnings report, and its announcement that it would move away from PayPal (O:PYPL) as its main payments partner. PayPal shares slid 6.4 percent.

UPS (N:UPS) was down 6.9 percent after it reported fourth-quarter profit that was hurt by higher holiday season shipping costs. The company was the second-biggest percentage loser on the S&P 500.

Analysts see fourth-quarter S&P 500 earnings growth of 14.9 percent, up from 12 percent expected on January 1. So far, of 227 companies that have reported, 79.7 percent have come in above Street estimates.

Tech giants Amazon.com (O:AMZN), Alphabet (O:GOOGL) and Apple (O:AAPL) are due to report after the bell.

Apple is expected to show year-on-year earnings growth of 14.8 percent.

Declining issues outnumbered advancing ones on the NYSE by a 1.18-to-1 ratio; on Nasdaq, a 1.01-to-1 ratio favored decliners.

The S&P 500 posted 26 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 72 new highs and 61 new lows.

Dollar underpinned by more hawkish Fed, awaits data for more impetus

The dollar held steady against a basket of major currencies on Thursday after the Federal Reserve signaled its confidence about inflation and growth in the world's biggest economy, reinforcing views it will raise rates several more times this year.

Traders are now awaiting a host of indicators including non-farm payrolls to see if they offer more than a brief respite to the ailing dollar.

The Fed kept interest rates unchanged on Wednesday but said inflation is likely to quicken this year, bolstering expectations borrowing costs will continue to climb under incoming central bank chief Jerome Powell.

"The Fed's message was a little hawkish, but dollar reaction was limited as such a stance did not come as too much of a surprise," said Shin Kadota, senior strategist atBarclays (LON:BARC) in Tokyo.

"The heavy selling we saw on the dollar is beginning to run its course, but upbeat U.S. data would be needed for the currency to rebound further," Kadota said.

Upcoming U.S. data include Thursday's manufacturing ISM index and U.S. non-farm payrolls and average hourly earnings due on Friday.

The dollar index against a basket of six major currencies was steady at 89.127 (DXY) having crawled back from a three-year trough of 88.438 set last week. The index fell 3.2 percent in January.

The dollar edged up 0.2 percent to 109.36 yen , edging away from a four-month low of 108.280 plumbed on Friday.

It had lost 3.1 percent against the yen in January, weighed by a bevy of factors including concerns about U.S. trade protectionism and lingering speculation the Bank of Japan was gearing up to begin an exit from its easy monetary policy.

"Dollar/yen is still in a consolidation phase," said Tareck Horchani, head of Asia-Pacific sales trading for Saxo Markets in Singapore, adding that the dollar's bounce was still looking tepid.

Demand for cross/yen pairs, such as the Canadian dollar against the yen (CADJPY=R), is helping to weigh on the yen and supporting the U.S. dollar, Horchani said.

Some traders are trying to put bullish bets on the Canadian dollar against the yen, after data on Wednesday showed strong growth in Canada's economy in November, he added.

"The demand (for Canadian dollar) has been quite strong, even in the options market," Horchani said.

The Canadian dollar held steady at C$1.2312 per U.S. dollar, having set a four-month high of C$1.2250 on Wednesday.

The euro last changed hands at $1.2417 (EUR=), having pulled away from a high of $1.2475 touched the previous day.

The common currency rose 3.5 percent in January, during which it scaled a three-year peak above $1.25, amid prospects for the European Central Bank to begin normalizing monetary policy this year.

That prospect got a boost earlier on Wednesday after last month's underlying euro zone inflation picked up pace.

The pound rose 0.1 percent to $1.4200 after surging 5 percent against the dollar in January.

Federal Reserve Keeps Rates Steady at Yellen's Final Meeting

The Federal Reserve left interest rates unchanged at the end of its two-day policy meeting on Wednesday, keeping them in a range between 1.25% - 1.50%.

The Federal Reserve signalled that it would push ahead on its monetary policy tightening path as economic activity has been rising at a solid rate, while inflation remained low but is expected to "move up" in the coming months.

"The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong," The Federal Reserve noted in its monetary policy statement. "Inflation on a 12‑month basis is expected to move up this year and to stabilize around the Committee's 2 percent objective over the medium term."

The somewhat upbeat outlook on inflation comes as data on Monday showed that the Core PCE Price Index, the Fed's preferred measure of inflation, rose 1.5% in December.

The dollar rose 0.12% to trade at 89.12 while gold futures turned negative falling 0.25% to $1,331.80.

The policy meeting was Fed Chair Janet Yellen's last as head of the central bank.

Wall Street stumbles as bond yields rise, health stocks fall

U.S. stocks fell for a second straight day on Tuesday, with the Dow registering its biggest two-day drop since September 2016, pressured by healthcare stocks and rising bond yields.

The Dow also had its biggest daily percentage decline since May 2017 and the day's 1.37-percent fall was the second-biggest single-day drop since the election of Donald Trump, slated to give his first State of the Union speech later Tuesday.

U.S. Treasury yields climbed to multi-year highs after the start of the Federal Reserve's two-day meeting, which could shed light on the central bank's economic and rate hike outlook.

"Investors are catching up to the fact that rates have risen," said Jonathan Mackay, investment strategist at Schroders (LON:SDR) in New York. "The market's finally catching up."

The selloff set traders in the options market fretting about a near-term shock to equities and the Cboe Volatility Index (VIX), the most widely followed barometer of expected near-term stock market gyrations, closed up 0.95 points at 14.79, its highest close since Aug. 17.

Healthcare stocks pulled the major indexes lower on news that Amazon.com Inc (O:AMZN), Berkshire Hathaway Inc (N:BRKa) and JPMorgan Chase & Co (N:JPM) will jointly form a healthcare company to help control costs for their U.S. employees.

The S&P 500 Healthcare index (SPXHC) was the day's biggest loser among the 11 major sectors, dropping by 2.13 percent.

The Dow Jones Industrial Average (DJI) fell 362.59 points, or 1.37 percent, to 26,076.89, the S&P 500 (SPX) lost 31.1 points, or 1.09 percent, to 2,822.43 and the Nasdaq Composite (IXIC) dropped 64.02 points, or 0.86 percent, to 7,402.48.

"Investors are getting a bit worried about inflation which has led some people to believe that the Fed might be more aggressive when it comes to raising rates," said Robert Pavlik, chief investment strategist at SlateStone Wealth.

MetLife Inc (N:MET) fell 8.6 percent and was the day's biggest daily percentage decliner in the S&P 500 after news the U.S. Securities and Exchange Commission was investigating the insurer's failure to pay some workers' pensions.

UnitedHealth Group Inc (N:UNH) was the biggest drag on the Dow, falling 4.3 percent.Pfizer Inc (N:PFE) was down 3.1 percent despite its better-than-expected earnings and upbeat 2018 guidance.

Harley-Davidson Inc (N:HOG) closed down 8.0 percent after announcing it would close a Kansas City plant in the face of declining shipments.

Apple Inc (O:AAPL) declined for a second day, falling 0.6 percent on news that the U.S. Department of Justice and the Securities and Exchange Commission are investigating the company's disclosure that it slowed older iPhones with flagging batteries.

Earnings so far have been stronger than expected. S&P 500 earnings growth is now forecast at 13.2 percent, up from 12 percent a month ago. Among companies that have reported so far, 80 percent are exceeding analysts' expectations, according to Thomson Reuters data.

Investors will likely scrutinize Trump's first State of the Union address for clues on trade policy and infrastructure spending.

Declining issues outnumbered advancing ones on the NYSE by a 4.17-to-1 ratio; on Nasdaq, a 2.98-to-1 ratio favored decliners.

The S&P 500 posted 17 new 52-week highs and four new lows; the Nasdaq Composite recorded 41 new highs and 43 new lows.

Volume so far on U.S. exchanges was 8.1 billion shares, compared with the 7.1 billion average for the full session over the last 20 trading days.

Dollar steadies ahead of Fed decision, on track for monthly loss

The dollar held steady against a basket of major rivals on Wednesday, as investors awaited the U.S. Federal Reserve's policy decision and U.S. President Donald Trump's State of the Union address.

The dollar index, which measures the greenback against a basket of six major currencies, was last at 89.145 (DXY) (=USD), clinging above a three-year low around 88.43 set last week.

Against the yen, the dollar rose 0.1 percent to 108.91 yen . The euro edged up 0.1 percent to $1.2416 (EUR=).

Trump will say in his State of the Union address that he is extending an open hand to work with both Democrats and Republicans, according to excerpts of the speech released by the White House.

Trump, who is scheduled to deliver the address on Capitol Hill at 0200 GMT, will call on both parties to work together on a plan to rebuild the country's infrastructure.

Traders are cautious ahead of a slate of events this week, including the U.S. Federal Reserve's two-day monetary policy meeting that ends on Wednesday and a U.S. jobs report on Friday that will include data on nonfarm payrolls and average hourly earnings.

The Fed is widely expected to keep interest rates unchanged this week, and investors will be looking to its policy statement for fresh hints on the outlook for interest rates this year.

The Fed probably won't make major changes to its assessment of the economic and inflation outlook at this stage, said Roy Teo, investment strategist for LGT Bank in Singapore, adding that any material changes are likely to be "further down the road".

Since market participants already seem to be bracing for the possibility of three Fed interest rate hikes this year, the chances of the dollar getting a lift from the Fed's forthcoming policy statement appear low, Teo added.

The greenback gained a bit of respite this week as the U.S. 10-year Treasury yield (US10YT=RR) rose to levels above 2.7 percent, reaching its highest level since April 2014.

The dollar is on track for hefty monthly losses against its major peers. For example, the euro has gained roughly 3.5 percent in January, putting the common currency on track for its best monthly performance against the dollar since July 2017.

The dollar has faced headwinds partly because its relative yield attraction is seen at risk as the world's major central banks, and not just the U.S. Federal Reserve, are seen heading toward winding down their stimulus programs.

Dow, S&P 500 suffer worst one-day fall in five months as Apple drags

Wall Street pulled back from record highs on Monday, with the Dow and the S&P 500 indexes marking their biggest one-day percentage declines in about five months, weighed down by a slide in Apple shares.

Shares of Apple (O:AAPL) fell 2.1 percent on news that the company will halve production of its $999 iPhone X smartphone. The company is due to report earnings on Thursday.

"The market's responding to the question of what Apple's earnings are going to look like, specifically what kind of guidance are they going to give on iPhone X sales," said Bucky Hellwig, senior vice president at BB&T (NYSE:BBT) Wealth Management in Birmingham, Alabama.

The S&P technology index (SPLRCT) fell 0.9 percent and was the biggest drag on the benchmark index following Wall Street's strongest four-week run since 2016.

The Cboe Volatility Index (VIX), the most widely followed barometer of expected near-term volatility for U.S. stocks, closed up 2.76 points, or nearly 25 percent, at 13.84, its highest close since Aug. 18. "We've had a long run in the stock market, and we've seen some unease, but that could be reversed with a couple of good days," said Hellwig.

Benchmark U.S. 10-year Treasury note (US10YT=RR) yields hit their highest since 2014 due to economic strength, which added to pressure on defensive sectors such as utilities, real estate and telecoms.

The Dow Jones Industrial Average (DJI) fell 177.23 points, or 0.67 percent, to 26,439.48, the S&P 500 (SPX) lost 19.34 points, or 0.67 percent, to 2,853.53 and the Nasdaq Composite (IXIC) dropped 39.27 points, or 0.52 percent, to 7,466.51.

The Dow and S&P 500 had their biggest daily percentage declines since Sept. 5. The S&P 500 still is up 6.7 percent since the end of 2017.

It was a rocky start to an action-packed week, which will feature U.S. President Donald Trump's first official State of the Union speech late Tuesday.

Also ahead this week is the Federal Reserve's meeting, the U.S. employment report and earnings from a host of high-profile names including Amazon.com (O:AMZN), Alphabet (O:GOOGL) and Facebook (O:FB).

Fourth-quarter earnings growth for the S&P 500 is now seen at 13.2 percent, up from 12 percent at the beginning of the year, according to Thomson Reuters data. Of the companies that have reported, about 80 percent have beaten Wall Street expectations.

Aside from higher yields, telecom stocks also slipped on reports that the U.S. government was considering building a 5G wireless network to guard against spying.

AT&T (N:T) was down 1.5 percent, Verizon (N:VZ) slipped 1.1 percent and Sprint (N:S) pulled back by 1.9 percent.

Dr Pepper Snapple Group (N:DPS) jumped to an all-time high after K-cup maker Keurig Green Mountain said it will buy the company in a deal worth more than $21 billion. The stock ended up 22.4 percent at $117.07.

Declining issues outnumbered advancing ones on the NYSE by a 4.65-to-1 ratio; on Nasdaq, a 2.16-to-1 ratio favored decliners.

The S&P 500 posted 126 new 52-week highs and three new lows; the Nasdaq Composite recorded 153 new highs and 29 new lows.

About 7.1 billion shares changed hands on U.S. exchanges. That compares with the 6.9 billion daily average for the past 20 trading days, according to Thomson Reuters data.

Asia stocks off record highs as Wall St. flags, dollar firms on higher yields

Asian stocks retreated from record highs on Tuesday after a selloff in Apple shares (NASDAQ:AAPL) and spike in bond yields knocked Wall Street lower, while the dollar found support as U.S. bond yields climbed to near four-year highs.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.1 percent after rising to an all-time high the previous day. It was still on track for a 6.5 percent monthly gain.

Australian stocks shed 0.9 percent, South Korea's KOSPI lost 1 percent and Japan's Nikkei dropped 1.4 percent.

Hong Kong's Hang Seng slipped 0.9 percent and Shanghai was down 0.8 percent.

Spreadbetters expect the negative pressure to spill over to Europe, forecasting Britain's FTSE to drop 0.7 percent at the open, Germany's DAX to open 0.8 percent lower and France's CAC to lose 0.6 percent at the open.

The bearish sentiment in Asia followed a softer lead from Wall Street, which has led a global equities rally over the past year thanks to strong world growth fuelling higher corporate earnings and stock valuations.

On Monday, U.S. stocks pulled back from record highs, with the Dow and the S&P 500 indexes marking their biggest one-day percentage declines in about five months, weighed down by a slide in Apple shares.

The dollar, however, enjoyed a reprieve from some persistent selling in the past few weeks.

Buoyed by higher U.S. bond yields, the dollar index against a basket of six major currencies was 0.15 percent higher at 89.457, having bounced overnight from a three-year low of 88.438 plumbed on Friday when peers like the euro outshone the greenback.

The 10-year Treasury note yield stretched its overnight surge above 2.70 percent and reached its highest since April 2014 after comments from a European Central Bank official added to expectations that central banks globally will reduce stimulus as the economic outlook improves.

"This is a rise in real interest rates, also reflecting a rise in inflation expectations," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

"The yield rise may have bumped off U.S. stocks from highs, but a correction was due after their recent gains," Ichikawa said.

The U.S. Treasury Department said on Monday that it expects to borrow $441 billion through the credit markets in the January-March quarter, less than announced previously.

Treasury yields remained elevated, however, as U.S. borrowing is expected to continue increasing steadily in the coming years as the federal government looks for ways to fund budget deficits.

Moreover, the bond market braced for potentially hawkish language from the Federal Reserve, which will begin its two-day policy meeting on Tuesday.

The focus was also on U.S. President Donald Trump's State of the Union address scheduled later in the global day, with attention on his views on an infrastructure overhaul and trade.

The euro was down 0.2 percent at $1.2361 after slipping overnight from a three-year peak of $1.2538.

The dollar was 0.3 percent lower at 108.645 yen, unable to hold to a high of 109.205 scaled earlier.

"The dollar lost a bit of traction against the yen as losses deepened for stocks in Tokyo and the rest of Asia. U.S. yields are going up, but players are hesitant to push dollar/yen higher ahead of President Trump's address," said Kyosuke Suzuki, director of forex at Societe Generale (PA:SOGN) in Tokyo.

The Australian dollar shed 0.3 percent to $0.8072 after reaching $0.8136 on Friday, its highest since May 2015.

Oil prices extended losses after being pressured by the dollar's bounce and rising U.S. crude output. [O/R]

U.S. crude futures were down 1.2 percent at $64.79 per barrel. Underpinned by the dollar's recent slide, prices had risen to $66.66 per barrel on Thursday, the highest since December 2014.

Brent crude fell 0.85 percent to $68.88 per barrel.

Spot gold slipped to $1,334.10 an ounce, the lowest since Jan. 23, weighed by the stronger U.S. currency. The precious metal had climbed to $1,366.06 last week, its highest since August 2016.

Dollar crawls up but not out of woods as U.S. policy doubts persist

The dollar crawled up from lows on Monday but struggled to pull ahead from six straight weeks of losses on its evaporating yield advantage and doubts about Washington's commitment to a strong currency.

The dollar index against a basket of six major currencies rose 0.2 percent to 89.215, extending its rebound from 88.429, a three-year nadir set on Thursday.

The currency was marginally helped by U.S. GDP data on Friday, which showed strong domestic consumption and capital spending even though the headline figure was weaker than expected due to a rise in imports.

Yet traders expect more headwinds for the dollar, which has been pummeled by renewed worries that President Donald Trump may use currency policy as a tool to press other countries to get better "deals" on trade.

"I don't see any changes in the dollar's larger downtrend. But given that U.S. GDP figures showed strong consumption and U.S. bond yields are rising, it's hard to expect a rapid fall in the dollar against the yen," said Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo.

Treasury Secretary Steven Mnuchin gave U.S. currency bears a major boost last week with a tacit endorsement of a weak dollar. While Trump tried to row back from those comments, the damage had already been done and the dollar's downturn since November showed little sign of abating.

The greenback is also losing its relative yield attraction for investors. Short-term interest rates are expected to rise in other countries as the European Central Bank and many others start to scale back their easy monetary policy.

U.S. equities have one of the most expensive valuations in the world, prompting investors to look for better bargains elsewhere.

Against the yen, the dollar eked out 0.1 percent gain to trade at 108.72 yen, after hitting a low of 108.28 yen on Friday, its lowest level since mid-September.

Comments from Bank of Japan Governor Haruhiko Kuroda in Davos on Friday that the central bank is finally close to the inflation target sparked expectation of an exit from its massive stimulus.

The yen later pared gains after a BOJ spokesman said Kuroda was merely repeating the central bank's official view.

Yet, it showed how sensitive the market is to any slightest hint that the BOJ is on the cusp of unwinding its stimulus.

"Many foreign players are now betting on a BOJ policy change. The dollar/yen has no major support if it falls below its September low of 107.32. A break of that level probably means a shift to new trading range," said Yukio Ishizuki, senior strategist at Daiwa Securities.

The euro traded at $1.2400, down 0.2 percent and off its three- year peak of $1.2538 touched on Thursday.

Its failure over the past couple of days to stay above $1.25 is seen by some traders as a sign of fatigue in its six-week old rally.

Data from U.S. financial watchdog Commodity Futures Trading Commission showed speculators' net long position in the euro/dollar futures traded in Chicago rose to a record high, suggesting that profit-taking could be on the cards.

The Australian dollar held firm at $0.8109 after hitting a 20-month peak of $0.8136 on Friday.

The Chinese yuan gained 0.2 percent to 6.3157 per dollar, near Thursday's 6.2968, which was its strongest since August 2015, when Beijing effectively devalued the yuan suddenly.

The yuan is on course for its biggest monthly gain in January, seen by traders as Beijing's counter-move to deflect any criticisms that China is gaining unfair trade advantage with a cheaper currency.