The yen climbed to one-month highs against the dollar and the euro and shares in exporters such as Honda fell on Friday, after the Bank of Japan governor signalled the central bank's super-easy monetary policy could end soon.
Short-term Japanese bond yields hit five-year highs on BOJ chief Toshihiko Fukui's warning that the period of near-zero interest rates was close to a finish.
Major Asian share markets were flat-to-higher as steel makers led gains on expectations for rising steel prices in China. But exporters were sold due to the weaker dollar, with Honda Motor Co. slipping 2 percent and Sharp Corp. down 1.9 percent. "There are a lot of uncertainties in the market right now," said Kirby Daley, a strategist at Societe Generale Securities' Fimat division in Hong Kong. "The forex (foreign exchange) markets are very emotional and they are going to react ... as they start to realise that something is going to change with BOJ policy."
Oil rebounded above $61 a barrel, after briefly dipping below $60 on Thursday on rising U.S. stockpiles. Tokyo's Nikkei closed flat, while MSCI's broadest index of shares elsewhere in Asia was 0.1 percent higher at 0625 GMT. A stronger yen is generally a negative for exporters because it can make their goods more expensive overseas and eats into their profits when dollar-denominated earnings are brought home.
At 0625 GMT the dollar traded at 116.66 yen after having fallen about 0.5 percent to around 116.42 yen, its lowest level since Jan. 27. The euro was at 139.04 yen after dropping half a percent to 138.84 yen, its lowest since mid-January. The single currency was little changed versus the dollar at $1.1920.
The yen had climbed more than 1 percent against the dollar on Thursday, after Fukui said the BOJ's policy of flooding the market with excess funds was coming to an end and that rates would eventually rise to a "neutral" level.
Gains were fuelled by a report in Japan's Yomiuri newspaper on Friday that the BOJ was considering dismantling the easing policy -- a first step before raising interest rates -- as early as its March 8-9 meeting.
"This isn't the first time we've heard about the possibility of an end to the policy in March ... but the risks of that happening have increased a bit," said Fumihiko Kawano, forex manager at Nomura Securities. The yield on five-year Japanese government bonds rose 9.5 basis points to 1.100 percent, the highest since November 2000. The yield was set to post its biggest daily rise since June 2004. The two-year yield also spiked higher, rising 7.5 basis points to 0.475 percent. "Clearly financial markets are getting the BOJ's message that the super, super easy money just isn't going to be there any more in the very near future," said Tomoya Masanao, portfolio manager in Tokyo for PIMCO, which manages almost $600 billion of assets.
NYMEX crude for April delivery rose 63 cents, or around 1 percent, to $61.17 a barrel.
U.S. data on Thursday showed crude stocks had risen by 1.1 million barrels last week -- as analysts had expected -- putting inventories 10 percent above last year. Gasoline stocks rose to their highest in nearly seven years.
But despite the swelling stockpiles, prices were supported by a disruption to oil production in Nigeria -- the world's eighth largest exporter -- due to rising violence in the Niger Delta.