TOKYO (Reuters) - Asian shares rose on Wednesday after Wall Street reversed a three-day losing streak, but Japanese stocks dropped sharply after the yen surged on fading hopes of near-term stimulus from the Bank of Japan (BOJ).
MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.9 per cent, taking heart from a recovery in United States stocks overnight.
Japanese stocks had a tough day on the back of the stronger yen which erodes exporters' competitiveness and their earnings when repatriated. The Nikkei dropped 2 per cent.
The yen experienced its strongest one-day gain in four weeks against both the dollar and the euro on Tuesday, according to Reuters data.
The rush to buy the Japanese currency came after BOJ Governor Haruhiko Kuroda offered few signs the central bank was ready to launch additional stimulus in the short term. He also expressed confidence the economy can ride out the impact of a sales tax rise.
Kuroda's confidence will be tested in coming months, with any sign the sales tax hike is undermining the recent recovery in consumer prices likely to build up hope for further BOJ easing.
"We haven't changed our view. We still think the BOJ will have to ease more, and that inflation will be short of its target by the year-end," said Marcel Thieliant, Japan economist at Capital Economics in Singapore, who expects the central bank to ease in October.
"Obviously Governor Kuroda sounded optimistic about the impact of the consumption tax hike, so for now imminent easing is certainly not on the cards," he said.
The dollar stood at 102.055 yen, off its three-week trough of 101.55 hit on Tuesday and still a long way off the 2-1/2 month high of 104.13 against the Japanese currency it touched on Friday.
The euro was at 140.71 yen after reaching 140.08 on Tuesday, its lowest in over a week. The single currency has pulled back sharply from a three-week peak of 143.475 scaled a week ago.