Asian shares edged higher on Monday, with investors still picking up shares battered by last week's steep plunge, while the yen fell to fresh lows on news a reflationary advocate could head the Bank of Japan next month.
The news Japan's government is likely to nominate Asian Development Bank president Haruhiko Kuroda, an advocate of aggressive monetary easing, as its next central bank governor, is set to be a major factor in financial markets this week.
Markets are pondering whether Italy's weekend elections will produce a stable government, and the implications of that for euro zone cohesion, while Moody's credit downgrade on Britain will play on confidence in the pound and government bonds.
Investors also await testimony on Tuesday from Federal Reserve chairman Ben Bernanke for further clues of when the Federal Reserve may slow or stop buying bonds. Financial markets rattled last week after minutes of the Fed's January meeting suggested few Fed officials were mulling scaling back its strong monetary stimulus earlier than expected.
The MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.1 per cent, pulled higher by Australian shares which gained 0.6 percent on reassuring comments from US Federal Reserve officials on the bank's current stimulus programme, which has helped underpin risk sentiment globally.
South Korean shares opened up 0.2 per cent, with the nation's new leader, who has shown willingness to talk down the won, being sworn in on Monday.
Tokyo's Nikkei stock average opened 1.6 per cent higher.
Early on Monday, the yen touched its lowest since May 2010 of 94.61 yen against the dollar, while the euro rose to a high of 124.83 yen, still off its 34-month peak of 127.71 set early this month.
The Nikkei newspaper reported the Japanese government is likely to nominate Haruhiko Kuroda and Kikuo Iwata, both vocal advocates of aggressive monetary expansion, as BOJ governor and deputy governor.
The dollar fell sharply to below 93 yen last week on media reports that Toshiro Muto, a former financial bureaucrat perceived as less willing to take unconventional steps, was the frontrunner candidate for the top BOJ job.
"The dollar's move this morning is merely a rebound from disappointment on Muto last week. I don't think this topic will be enough to hoist the dollar above 95 yen," said Hiroshi Maeba, head of FX trading Japan at UBS in Tokyo. "No matter who is elected at the BOJ, it will not affect the longer-term trend of a weak yen," he said.
Speculation over the BOJ has been a key factor driving the yen lower recently due to anticipation for strong reflationary measures, but other fundamental factors such as Japan's deteriorating trade balances and signs of firmer US growth also supported a weakening yen trend.
Abe told Americans on Friday "I am back and so is Japan" and vowed to get the world's third biggest economy growing again.
The euro was up 0.1 per cent to $1.3192, off Friday's six-week low of $1.31445.
Sterling fell to a 31-month low of $1.5073 early on Monday and a record low against the New Zealand dollar at NZ$1.8025 following Friday's one-notch downgrade of Britain's prized triple-A sovereign rating by Moody's.
Wall Street ended higher on Friday, boosted strong earnings from Dow component Hewlett-Packard, but the benchmark Standard & Poor's Index posted its first weekly decline of the year. European shares rose on Friday after data showed German business morale surged at its fastest pace in over two years in February.
Hedge funds and other big speculators cut their bullish bets on US commodities by nearly $13 billion, the most in about 10 months, in the week to February 19 to $69 billion, just before oil and metals prices tumbled last week on rumours a commodities fund was dumping positions, trade data showed on Friday.
US crude was up 0.1 per cent to $93.26 a barrel.
Copyright @ Thomson Reuters 2013