Nikkei charges toward all-time high, dollar under pressure

Japan's Nikkei charged toward an all-time high on Friday, helped higher by a buoyant Wall Street after a big fall in US retail sales revived the chance of a June rate cut, which in turn weighed on the dollar.

Nikkei surged 1.4% to 38,678 points, just within a whisker of the all-time high of 38,957 points hit in 1989 that marked the peak of Japan's so called "bubble economy."

The index is up 4.8% for the week, the third straight week of gains, bringing the year-to-date gains to a staggering 15.6%.

Elsewhere, Asian shares mostly tracked Wall Street higher. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3% and was headed for a 1.4% weekly gain.

Figures on Thursday showed that Japan and Britain slipped into recession at the end of last year, and US retail sales last month fell much more than expected. But the upshot of that could be relatively looser monetary policy.

"I think the demand picture is certainly starting to fracture in some of the developed market economies," said Tony Sycamore, market analyst at IG. "So it does bring forward the idea of rate cuts."

"One by one the dominoes are starting to fall. The UK and Japan fell yesterday. Obviously there's a long way to go for the US to fall into recession because their numbers have been pretty good. Europe you know it could be the next to go. And China's not great."

Nomura on Thursday forecast the Nikkei would reach 40,000 points by the end of the year, citing reasons such as an end to deflation in Japan, global investment shifting away from dependence on Chinese equities and improvement in Japanese corporate governance.

Overnight, data showed the US retail sales fell by 0.8% in January, the sharpest drop in 10 months, confounding expectations of a small dip of 0.1%.

Markets moved to fully price in a rate cut from the Federal Reserve in June, reversing some of the price action after a stronger-than-expected US inflation report prompted traders to give up bets for early rate relief.

That cheered Wall Street with the S&P 500 .SPX gaining 0.6%, the Nasdaq Composite .IXIC up 0.30% and Dow Jones Industrial Average firming 0.91%.

The repositioning in interest rate expectations weighed on the dollar, which lost 0.4% against its peers overnight and was last at 104.36. Traders are awaiting the produce price data later in the day for more clues on Fed policy.

The yen caught some respite from the dollar's retreat and was last at 149.9 per dollar. It gained 0.4% overnight to move away from the critically watched 150 level that could invite possible Japanese intervention.

Treasuries recovered some of the losses from the hotter-than-expected CPI figures earlier in the week. The yield on benchmark 10-year notes was little changed at 4.2496%, after slipping 3 basis points overnight. It was still up 6 basis points for the week.

Two-year Treasury yields edged 2 basis points higher to 4.5930% and was up 10 basis points for the week.

Oil prices were mixed on Friday after jumping the previous session. The International Energy Agency (IEA) on Thursday flagged slowing demand growth this year.

Brent LCOc1 eased 0.2% to $82.73, while US crude CLc1 edged 0.1% lower to $77.98 per barrel.

The spot gold price was flat at $2,003.09.