Nikkei set to test 32-month high on monetary easing hopes

TOKYO, Jan 18 (Reuters) - Japan's Nikkei share average is set to test a 32-month high on Friday as exporters are expected to gain after a fall in the yen on expectations that the central bank will ease monetary policy aggressively next week. Citing sources familiar with the central bank's thinking, Reuters reported on Thursday that the BoJ next week will consider removing the 0.1 percent floor on short-term interest rates and commit to open-ended asset buying until the 2 percent inflation target is reached. The central bank's policy meeting is scheduled on Jan. 21-22. "There still is strong expectation on Abenomics," said Hiroichi Nishi, assistant general manager of equity information department at SMBC Nikko Securities, referring to Prime Minister Shinzo Abe's push to pressure the central bank into aggressive policy easing. Nishi added that the market is increasingly encouraged by the prospect of exporters' earnings growing at a better pace in the coming years. The Nikkei has rallied about 22.5 percent over the past two months, buoyed by a weaker yen. On Thursday, the yen fell to a more than 2-1/2-year low of 90.14 yen to the dollar. The yen last traded at 89.89 yen to the dollar. A weak yen lifts exporters' overseas earnings when repatriated. Market players said the Nikkei was likely to trade between 10,750 to 10,950 on Friday after ending up 0.1 percent at 10,609.64 on Thursday. The 11,000-line, a level not seen since April 2010, is in sight if the yen weakens further and nears 91 during the day, analysts added. Nikkei futures in Chicago closed at 10,860, up 230 points from the close in Osaka of 10,630. Analysts also noted that while data showing a recovery in the U.S. economy will be a tailwind to the Japanese market in the long term, U.S. earnings may have a negative impact especially in the very near term after Intel Corp disappointed the market with poor earnings. Intel's shares fell 5.2 percent in extended-hours trading after the company forecast quarterly revenue that fell short of analysts' expectations. Meanwhile, the number of Americans filing new claims for unemployment benefits fell to a five-year low last week and housing starts jumped last month to the highest since June 2008.

"The market is upbeat with hopes for easing, but it's Friday, so overall, gains may be modest at the end of the day," said Yutaka Miura, a senior technical analyst at Mizuho Securities.

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