Japanese shares surged to multi-year highs on Tuesday as the yen hit a 2-1/2-year low against the dollar the previous day on rising expectations that strong political pressure will prompt the Bank of Japan to deliver bold monetary easing measures.
Other Asian stock markets struggled, with the MSCI's broadest index of Asia-Pacific shares outside Japan giving up earlier gains to ease 0.2 percent.
The pan-Asian index was dragged down by a 0.7 percent decline in South Korean shares, which took a hit from losses in Apple Inc suppliers after media reports said the iPhone maker had slashed orders of screens and other components on weaker- than-expected demand.
"Investors (in the Seoul market) are taking profits on the technology sector, which rallied for the past couple of months, while snapping up auto shares which have been lacklustre," said Kim Soo-young, an analyst at KB Investment & Securities in Seoul. Tokyo shares were the highlight of the session, with the benchmark Nikkei stock average climbing 1.3 percent to its highest level since late April 2010 as the yen remained on a weakening track, helping to improve earnings prospects for exporters. The Nikkei was in deep "overbought" territory technically, signalling a possible near- erm correction.
"Short-term correction is getting more likely given that bullish sentiment ... has become more widespread," said Yasuo Sakuma, portfolio manager at Bayview Asset Management.
Yen-selling activity eased on Tuesday, however, when Japanese Economics Minister Akira Amari said excessive yen weakness could have a negative impact on people's livelihoods through a rise in import prices.
The dollar took a breather, pulling back 1 percent to 88.62 yen, having hit its peak since June 2010 of 89.67 yen on Monday. The euro also eased 1 percent to 118.695 yen, having hit its highest since May 2011 of 120.13 on Monday. Against the Australian dollar, the yen earlier matched its lowest since August 2008 touched on Monday at 94.64.
Many still believe the weak yen trend has more legs. In a research report, Societe Generale noted that U.S. exports have overwhelmed others in the Group of five -- the United States, Britain, Germany, France and Japan -- in 2012, and concluded the United States was "winning the currency war" while Japan was losing "in a really big way".
"Buying USD/JPY is the obvious conclusion," it said. The dollar was also underpinned by benchmark U.S. Treasury yields which have been