Tokyo shares fell sharply on Friday on the back of a stronger yen and the dollar languished at a five-week low against a basket of currencies as investors waited for clarity on U.S. stimulus at the Federal Reserve's policy meeting next week.
A Wall Street Journal report that the Fed may debate changing its forward guidance to help ram home its message that it will keep interest rates low for a long time to come put the dollar on the back foot overnight.
But most economists and traders still expect the Fed could start tapering its monetary stimulus in September.
The dollar eased 0.4 percent against a basket of major currencies to be not far from a five-week low touched on Thursday, offering some support to gold and crude prices.
Against the yen, it was down 0.5 percent at a two-week low of 98.750 yen. The euro was steady at $1.32845, after gaining 0.6 percent overnight on the back of positive economic reports from the euro zone.
A gauge of planned U.S. business spending on capital goods rose in June, while new claims for jobless benefits edged higher last week but remained within a range that suggests the labour market's recovery is on track.
JAPAN CPI RISES
The firmer yen weighed on Tokyo's Nikkei share average , which sagged 2.1 percent to a two-week low.
"We are seeing the yen strengthening," a Tokyo-based trader said. "There is also the summer fatigue. People are going on holiday and they are closing positions."
Japan's consumer prices rose in June for the first time in more than a year, a positive sign for the government's battle against deflation, but the rises centred on higher electricity bills rather than stronger demand that could drive a durable recovery.
"The rise in the CPI is mainly due to the weaker yen, which is raising import costs, so it's too early to be overly optimistic. But we can say that 'Abenomics' is very much in play," said Nobuhiko Kuramochi, strategist and economist at Mizuho Securities in Tokyo.
But Japanese companies' one-month earnings momentum slowed dramatically this month, to 1.1 percent from 10.1 percent in June, according to Thomson Reuters I/B/E/S, while that for MSCI Asia-Pacific ex-Japan index deteriorated further to minus 7.1 percent from minus 5 percent.
ASIAN SHARES IN DEMAND
The MSCI Asia-Pacific ex-Japan index advanced 0.6 percent on Friday and Australian shares gained 0.4 percent.
Seoul shares inched up 0.2 percent. Samsung Electronics Co Ltd eased 0.7 percent after its April-June operating profit increased 47.5 percent to 9.5 trillion won ($8.5 billion), in line with its estimate.
In the commodity markets, Brent crude prices added 0.1 percent to just below $108 a barrel after gaining 0.4 percent overnight on the back of the weaker dollar.
Gold added 0.4 percent, extending a 0.9 percent rise in the previous session, also boosted by a weaker dollar.
Copper prices ticked down 0.1 percent but held above $7,000 a tonne. They had slipped 0.6 percent on Thursday, to snap a five-day winning run, on concerns that a slowing Chinese economy may dent demand from the world's top consumer.