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LONDON (Reuters) - The yen made a decisive break through 100 to the dollar to hit a 4-1/2 year low on Friday, triggering a rise in safe-haven bond yields and supporting gains in European and Japanese shares which hit new five-year highs.
U.S. Treasury 10-year note yield hit a one-month peak of 1.85 percent as the dollar gained on the yen, while stock index futures signaled that Wall Street was set to resume its recent record-breaking rise. .N
The falls in Japanese currency were sparked by a drop in weekly U.S. jobless claims data on Thursday, which added to evidence of a rapidly improving employment market first seen in last week's nonfarm payrolls report. ECONUS
The move was given a further push when Japan's Ministry of Finance revealed on Friday that domestic investors had turned net buyers of foreign bonds in the last two weeks. <JP/CAP>
This confirmed widespread expectations that the Bank of Japan's aggressive stimulus plans would result in a massive flight of money out of the country in a search for higher yielding investments.
"We've had back to back good news in U.S. figures and you have to wind the clock back six to eight weeks to find the last time we had that," said Nick Parsons, head of market strategy at National Australia Bank.
"Once we got through a 100 (yen) and the Japanese bond buying data came out, that added fuel to the fire," he said.
The yen hit a low of 101.66 to the dollar, its weakest level since April 2009, and fell to a three-year trough against the euro of 132.16 yen. Against a basket of major currencies, the dollar hit a two-week high 82.68 .DXY.
The yen's move came as finance ministers and central bankers of the G7 countries gathered for a two-day meeting near London, to discuss ways to stimulate growth, with currency movements likely to be one of the main topics on the agenda.
Ahead of the meeting, U. S. Treasury Secretary Jack Lew said Japan's attempts to stimulate its economy needed to stay within the bounds of international foreign exchange agreements.
"So as long as they stay within those bounds of those international agreements I think growth is an important priority," Lew told the CNBC news channel in London. G7
The strength in the U.S. jobs market has raised hopes that signs of a slowdown in other economic data will turn out to be more of a soft patch rather than an end to the current recovery.
"I think the U.S. will be once again play a dominant role (in the global economy) and that is the best investment," said Neil Petroff, Chief Investment Officer of the Ontario Teachers Pension Plan attending a conference in London.
"They are going to be self sufficient in oil, companies that are reliant on energy for production are coming back from Asia to the U.S. Then there is the housing market that has come back and technology has always been innovative in Silicon Valley."
The U.S. Federal Reserve Chairman Ben Bernanke could even leave the door open to further stimulus to boost the economy in a 1330 GMT speech after conflicting comments on the program's effectiveness from some Fed officials.
The brightening economic outlook, amid efforts by all the world's major central banks to stimulate activity, saw European equities power on to fresh five year highs, drawing added comfort from some solid corporate earnings reports.
The FTSEurofirst 300 index was up 0.6 percent at 1,236.69 points by midday with London's FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI up as much as 0.9 percent. .L.EU
Britain's main index was on course for its seventh straight daily gain as recent data on the UK economy shows it recovery gathered pace in the three months to April.
While German government bonds futures, usually sought when investors are more fearful about the outlook, fell to a one month low of 145.06, down 83 ticks.
As the yen fell, Japanese shares climbed to hit a 5-1/2 year high with exporters and financials leading the charge on prospects of enhanced corporate earnings. The benchmark Nikkei share average .N225 closed up 2.9 percent to 14,607.54.
The index is up 6.4 percent for the week its biggest weekly gain since December 2009 when it jumped 10.4 percent. .T
However, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.9 percent, after climbing to its highest since July 2011 on Thursday.
MSCI's world equity index .MIWD00000PUS, which tracks stocks in 45 countries, was down 0.15 percent but is on course to end its third week of gains at a five-year high.
Asian markets were being held back by persistent doubts over the strength of the Chinese economy, which has also weighed on commodity prices. In the first quarter, China's grew by a less than forecast 7.7 percent, frustrating investors who had hoped for a strong rebound of at least 8 percent
The doubts over demand from the world's second largest economy and the dollar's strength saw Brent crude trade under $104 a barrel on Friday, down 62 cents, while U.S. crude eased 68 cents to $95.86 a barrel.
Editing by Jeremy Gaunt, Ron Askew