Asian stocks climbed on Wednesday after the Federal Reserve raised U.S. growth forecasts for 2010 but Japanese shares fell to a four-month low on worries about capital raisings and government economic policy.
The dollar fell to a seven-week low 88.20 yen in morning Tokyo trade as Japanese exporters sold the U.S. currency and the greenback also fell against other currencies.
As confidence in Japan's economy wanes, financial markets have been reflecting some of that concern with the stock market trailing rest of the region significantly these past few weeks.
"International investors have been underweight Japan for quite some time," said Mark Konyn, who oversees about $11 billion as Asia-Pacific chief executive of RCM, a unit of Allianz Global Investors.
"As we went through the election this year there was a glimmer of hope that reforms combined with improvement on economic fundamentals would spur investor interest," he said.
But the yen's rise, worries about capital raisings and doubts about government economic and fiscal policies have rattled foreign investors, who have a prominent role to play given that domestic sellers have been net sellers after a change in investment strategy by pension funds, analysts say.
Funds have been cutting stocks holdings and increasing exposure to foreign holdings to diversify and rebalance their investments.
"You put that (foreign investor worries) alongside the economic disappointments and the incredible amount of capital raisings going and so you have the Japanese market lagging significantly," Konyn said.
The modest recovery in the stock markets in Japan has been smothered by a wave of share and convertible bond issuance by companies looking to raise much-needed cash after the financial crisis.
The benchmark Nikkei fell to a four-month low of 9,366.33 before recovering to trade flat in a broadly higher Asia boosted by sectors like materials and consumer staples.
The MSCI index of Asia Pacific stocks traded outside Japan was up 0.33 percent. The Thomson Reuters index of regional shares was up 0.87 percent.
Fund raising worries also dragged down shares in two of China's top four banks in a broadly steady market.
Bank of China fell as much as 4.8 percent to a three-week low of HK$4.40 and China Construction Bank down as much as 2.1 percent, its lowest level in nearly two weeks.
Both had notified regulators that they were working on fundraising proposals to improve their balance sheets after a lending surge in the first half of the year, a source told Reuters on Monday.
Meanwhile, gold regained its shine after inflation worries had investors chasing the yellow metal which rose to a record high of $1,175.55 per ounce.
Australian stocks and the Aussie dollar were both boosted by upbeat comments from a top central banker that the country can look forward to years of brisk economic growth built on booming resource investment, rapid population growth and rising household incomes.
That has revived expectations the central bank will raise raise interest rates by another 25 basis points to 3.75 percent next week. Investors are tipping a 78 percent chance of a rate rise, up from last week's 62 percent.
