Yen declines as stock rally improves

Yen dropped against the dollar and the euro on Monday as a gathering in Asian shares improved investors' interest for risk, decreasing demand for the Japanese currency.

Asian shares were heightened by strong Wall Street gains on Friday and by China's launch of a huge economic stimulus plan on Sunday.

The yen had slightly risen against the dollar on Friday following weak U.S. employment data for October, but gave back gains and retreated after a big bounce on Wall Street later in the day.

"The market's main focus is on equities after the dollar was not sold off against the yen despite discouraging U.S. employment figures," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank.

"The yen's resulting weakness is supporting the euro as well. With the employment data out of the way the main concern for the market is how U.S. monetary and fiscal policies play out," Inoue said.

The dollar was up to 99.14 yen, up 0.9 percent from late U.S. trading on Friday. The euro gained 2.2 percent to 127.71 yen on trading platform EBS. Against the dollar, the euro rose 1.3 percent to $1.2884.

The Nikkei share average jumped 5.5 percent, lifted by Wall Street and hopes for U.S. President-elect Barack Obama's upcoming economic policy.

China’s stimulus package plan might be the beginning

Asian equity markets were also improved after China announced an economic stimulus package on Sunday worth nearly $600 billion in what could be the start of a round of big spending or interest rate cuts by leading economies to avoid recession in many countries.

Share prices are viewed as a barometer of investors' risk appetite, and their rise can stop unwinding of carry trades, which involve selling of low-yielding currencies like the yen to invest in higher-yielding currencies and assets.

Following the launch of China's large stimulus package, market players are looking out for steps that could impact currencies such as the economic policy to be announced by U.S. President-elect Barack Obama and the Group of 20 leaders' summit in Washington on Saturday.

Financial officials from the G20, which includes developing powers such as China and Brazil as well as industrialized nations, agreed on ways to stimulate growth at a meeting in Sao Paulo, Brazil, at the weekend.

They will hold further discussions on the matter on Saturday in Washington.