The U.S. dollar touched seven-year peaks versus the yen on Monday as markets basked in the afterglow of the Bank of Japan's surprise stimulus push and looked forward to at least a hint of fresh action from European policy makers this week.
The dollar came within a whisker of 113.00 yen JPY= in early trade, reaching a high not see since December 2007 and bringing into view that month's peak of 114.66.
It last traded at 112.83 having soared over 3 percent since the BOJ said it would accelerate purchases of bonds and other assets in an ever-more desperate attempt to defeat deflation.
The bold move has raised expectations the European Central Bank will eventually have to bite the bullet on quantitative easing, even if not at its next meeting this Thursday.
"In this environment of subdued growth and long-term low-flation, we expect the ECB to announce the purchase of government bonds of euro area member states by early next year at the latest," said Apolline Menut, an analyst at Barclays.
That outlook is one reason the euro was pinned at $1.2508 EUR-, just above a two-year trough of $1.2485 set on Friday.
While markets in Tokyo were enjoying a holiday after Friday's 4.8 percent surge in theNikkei .N225, shares across Asia were consolidating their gains.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dipped 0.2 percent from a five-week high. Australia's main index .AXJO inched higher aided by another bumper result from the nation's big four banks.
Westpac Banking Corp
On Wall Street, both the Dow Jones industrial average and the S&P 500 index had notched record closing highs on Friday. The Dow .DJI gained 1.13 percent and the S&P 500 .SPX1.17 percent.
Sentiment in Asia was only somewhat tempered by an unexpected dip in China's factory activity to a five-month low in October, underlining the uncertain outlook for world's second biggest economy.
The official Purchasing Managers' Index (PMI) eased to 50.8 in October from September's 51.1, though that was still above the 50-point level that separates growth from contraction.
The soft result knocked half a cent off the Australian dollar AUD=D4, which is often used by investors as a liquid proxy for bets on China.
Yet the allure of Australia's relatively high yields has only been burnished by the BOJ's actions and lifted the Aussie to its highest on the yen since May last year at 98.91 AUDJPY=R.
Indeed, by announcing it would buy more longer-dated bonds and thus pushing down already threadbare yields, the BOJ is clearly trying to force Japanese investors to seek higher returns in riskier assets, both at home and abroad.
The rush out of yen was given more impetus by news that Japan's $1.2 trillion Government Pension Investment Fund will raise its holdings of foreign stocks to 25 percent, well above some analysts' expectations.
In contrast, U.S. Treasury yields ended higher last week after the Federal Reserve wound down its bond buying campaign against a generally improving economic background.
In a data-packed week, the US's ISM index of manufacturing activity due later Monday is expected to hold at a relatively healthy 56.2 in October, while the October payrolls report on Friday should show a solid increase of around 231,000. ECONUS
The ascent of the U.S. dollar has been painful for commodities priced in that currency, with gold near its lowest since 2010 at $1,166.00 an ounce XAU= on Monday.
Brent for December LCOc1 edged up 4 cents to $85.90 a barrel, while U.S. crude CLc1 was flat at $80.54.
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