Japan shares hit 34-yr highs, yen steady ahead of BOJ decision

Japanese shares surged to fresh 34-year highs and the yen steadied on Tuesday, hoping the Bank of Japan will not rock the boat by pivoting away from its super easy policy any time soon, while Chinese stocks extended declines after a brutal session.

Japan's Nikkei rose 0.6 per cent to the highest level since February 1990, bringing the year-to-date gains to 9.9 per cent. Meanwhile, MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.2 per cent higher, but were down more than 6 per cent this year due to the tumble in Chinese shares.

The yen languished at 148.12 per dollar, having slid 5 per cent this year.

The BOJ is expected to retain its ultra-easy monetary settings later in the day, as policymakers assess the progress made by the economy towards meeting the conditions for phasing out the decade-long accommodative policy.

None of the economists polled by Reuters expect the central bank to end its negative rate policy this time, though many see it happening in April. Governor Kazuo Ueda will hold a press conference after the decision, with traders focusing on the inflation outlook and any signs of imminent policy change.

"The market will probably be disappointed again because we don't believe that Ueda will give a clear signal of policy normalisation in the near future," said Robert Carnell, regional head of research, Asia-Pacific, at ING.

"He may, however, sound more dovish than in the past, given the recent slowdown in inflation."

Yields on Japanese government bonds were flat at 0.65 per cent in early Asia, down from a peak of 0.97 per cent in November.

Most Asian sharemarkets were up, tracking the overnight rally on Wall Street which sent the benchmark S&P 500 to another record high amid little market-moving data and events.

China again proved to be the outlier, with relentless foreign selling and weak confidence pushing the bluechips to five-year lows.

China's bluechips  fell 0.7 per cent after sliding 1.6 per cent a day earlier to close at the lowest level in five years. Hong Kong's Hang Seng index rebounded 0.4 per cent, having fallen 2.3 per cent on Monday..

Investors are waiting for earnings from Netflix after the close and expectations are generally upbeat. Also due is GE, with JPMorgan looking for earnings to beat the Street and a constructive for the year ahead, with investors looking for aero margins above 19 per cent.

Coming into the new year, traders have pared back the timing of the first interest rate cut from the Federal Reserve, with the probability for March just at 40 per cent now. However, they still see about five rate cuts this year.

The European Central Bank (ECB) meets on Thursday and is expected to hold monetary policy steady.

Currency markets were broadly steady ahead of the BOJ decision. The dollar has held up better this year, up 2 per cent against its major peers , but recent movements were rangebound, holding at 103.35.

U.S. Treasury yields were little changed after dipping overnight as investors took advantage of a decline in bond prices to enter the market. The 10-year were little changed at 4.0995 per cent, while the two-year yield held at 4.3868 per cent.

Oil prices held up gains on Tuesday after surging 2 per cent overnight as a Ukrainian drone strike on Russia's Novatek fuel terminal caused supply disruption.

U.S. crude futures were flat at $74.72 per barrel after climbing 2.4 per cent overnight to a one-month top of $75.75 and Brent futures slipped 0.1 per cent to $79.79.
Spot gold were steady at $2,022.19 an ounce.