HONG KONG - Asian markets were mixed Monday, with Tokyo's Nikkei hit by a stronger yen and profit-taking after last week's rally, while dealers await the outcome of a policy meeting at the Bank of Japan.
Wall Street provided a strong lead, with the Dow and S&P 500 hitting more than five-year highs after Republicans proposed a three-month increase to the US debt ceiling in order to agree a budget and long-term spending cuts.
Tokyo's Nikkei, which hit a 33-month high Friday, fell 0.85 per cent by the break Monday and Sydney was up 0.11 per cent, while Hong Kong, Shanghai and Seoul were flat.
Policy makers at Japan's central bank on Monday kicked off a two-day meeting that markets widely expect will see them adopt a two per cent inflation target and unveil more monetary easing.
The yen has tumbled in recent months - sending the stock market surging - since Shinzo Abe promised ahead of December's election that he would urge the bank to be more aggressive in its battle to save the economy.
Abe swept to power in the poll and has since moved to bring BoJ policies into line with his new Liberal Democratic government's position.
"All eyes are on the Bank of Japan, which should come through to meet expectations for more easing and some kind of inflation target rhetoric," said SMBC Nikko Securities general manager of equities Hiroichi Nishi.
However, with dealers having already priced in such moves by the bank, the yen clawed back some of its recent losses on Monday.
The dollar, which on Friday in New York hit 90.24 yen (S$1.24) - its highest since June 2010 - bought 89.70 yen in early Tokyo trade Monday.
The euro eased to 119.53 yen from 119.96 yen in New York, while it was also at US$1.3325 (S$1.64), compared with $1.3317.
US shares closed with a rally on Friday after the Republican offer to increase the nation's borrowing limit while a budget is agreed, providing hope that rival lawmakers will be able to reach a long-term fiscal agreement.
White House spokesman Jay Carney said the administration was "encouraged" by the development.
The government is due to reach its limit at some point around the end of February, while politicians also have to agree spending cuts that were put off as part of a fiscal cliff deal agreed at the start of the year.
On Wall Street, the Dow rose 0.39 per cent and the S&P 500 added 0.34 per cent, with both indexes hitting highs not seen since December 2007. The Nasdaq finished flat.
Oil prices eased, with New York's main contract, light sweet crude for delivery in February, shedding 35 cents to $95.21 a barrel and Brent North Sea crude for March delivery dropping 22 cents to $111.67.
Gold was at $1,689.60 at 0300 GMT compared with $1,689.88 late Friday.