Dollar extends yen gains in Asia as Fed, BoJ diverge

Fed boss Janet Yellen said the world's biggest economy was "performing well" while it emerged after a closely watched meeting that most members of the policy board wanted to lift borrowing costs by December.

The central bank also announced it would next month begin cutting back on its holdings of bonds and other assets built up as part of a scheme to keep rates low and steer the economy through the global financial crisis a decade ago.

Yellen said policymakers would react accordingly to any negative impacts on the economy, adding that persistently low inflation would likely come to an end.

She also said if prices rose too quickly the bank would be able to lift rates quicker.

"It doesn't get any more brazenly hawkish from Dr Yellen, who along with the majority of her colleagues is clearly in the December rate hike camp and the markets are reacting to this news," said Stephen Innes, head of Asia-Pacific trading at OANDA.

The dollar surged in New York to ¥112.15 from ¥111.50 earlier in Asia. On Thursday the US unit was given an extra lift after the Bank of Japan decided against altering its ultra-loose monetary policy, which analysts said could see it break above ¥113 soon.

The euro sank from around US$1.20 to below US$1.19 while the pound dropped below US$1.35 in New York but the pair recovered some ground in Asia Thursday.

The greenback continued to advance against other higher-yielding currencies with the Australian and Canadian dollars, South Korean won and Indonesia's rupiah all well down.

EQUITIES STRUGGLE

The dollar's gains come after a run of losses in recent months as tepid inflation and a lack of movement on Donald Trump's economic agenda in Congress had seen investors bet on no more rate hikes this year.

The jump in the dollar against the yen boosted Japanese exporters, which helped the Nikkei index close 0.1 per cent higher.

Toshiba retreated as its US partner Western Digital vowed to block an US$18-billion deal that will see the Japanese firm sell its key chip business to a consortium led by US investor Bain Capital and including Apple and Dell.

The deal, announced by Toshiba on Wednesday, is seen as crucial to the Japanese firm's survival.

But most other regional markets retreated. Hong Kong, where monetary policy is linked to that of the United States, eased 0.1 per cent while Sydney shed 0.9 per cent on falling iron ore prices.

Shanghai was off 0.2 per cent, Singapore eased 0.1 per cent and Seoul retreated 0.2 per cent. Wellington slipped 0.3 per cent but Taipei was up 0.6 per cent and Manila put on 1.1 per cent.

In early European trade, London was barely changed, while Paris rose 0.4 per cent and Frankfurt put on 0.3 per cent.

On oil markets, both main contracts dipped following an almost two percent rally Wednesday on data showing US gasoline stockpiles had fallen to a 22-month low, while speculation circulates that Nigeria and Libya will join the OPEC-Russia production cuts.

- Key figures around 0820 GMT -

Tokyo - Nikkei 225: UP 0.1 per cent at 20,347.48 (close)

Hong Kong - Hang Seng: DOWN 0.1 per cent at 28,110.33 (close)

Shanghai - Composite: DOWN 0.2 per cent at 3,357.85 (close)

London - FTSE 100: FLAT at 7,273.46

Euro/dollar: DOWN at US$1.1897 from US$1.1898 at 2100 GMT

Dollar/yen: UP at ¥112.63 from ¥112.15

Pound/dollar: UP at US$1.3510 from US$1.3495

Oil - West Texas Intermediate: DOWN eight cents at US$50.61 per barrel (new contract)

Oil - Brent North Sea: DOWN 14 cents at US$56.15

New York - DOW: UP 0.2 per cent at 22,412.59 (close)