Yen weakens on talk of Japanese snap election

[November 13, 2014]  By Anirban Nag

LONDON (Reuters) - The dollar rose towards a recent seven-year high against the yen on Thursday, driven by renewed speculation that Japanese Prime Minister Shinzo Abe will call a snap election in December.

The dollar's rise, though, slowed in the European session after New York Federal Reserve President William Dudley said any premature tightening in monetary policy could hurt economic recovery.

The dollar was up 0.2 percent at 115.65 yen, not far from the seven-year high of 116.11 yen struck on Tuesday. The euro too rose 0.4 percent to 144.15 yen while the high-yielding New Zealand dollar hit a seven-year high against the yen as the Japanese currency continued to cede ground.

An election is seen returning Abe to power with a bigger mandate, which analysts believe would allow him to implement a second round of reflationary policies and possibly delay a planned sales tax hike. That has spurred a rally in Japanese stocks <.N225> and weighed on the yen.

"Dollar/yen is headed higher and all those who missed the bus at lower levels will use the political developments to build long dollar positions," said Geoff Yu, strategist at UBS.

A senior figure in Abe's ruling party told reporters it appeared the premier had decided to call an election. Abe is expected to make his decision depending on the strength of economic indicators, with third-quarter gross domestic product data due on Monday.

The market was also awaiting U.S. jobless claims data on Thursday and retail sales on Friday. Those numbers may reinforce perceptions that the U.S. economy is doing better than Europe or Japan, helping to push the dollar higher against the euro and the yen.

The Australian dollar fell after an official at the Reserve Bank of Australia (RBA) said it had not ruled out intervening to sell the currency, which it views as overvalued. The Aussie recovered later to trade at $0.8745, but traders were cautious.

"If the general dollar strength does not ensure that the Australian dollar is capped then the RBA will no doubt do so," said Thu Lan Nguyen, a currency strategist at Commerzbank.

The Swiss franc also remained on intervention watch.

The franc has hit two-year highs against the euro  this week as traders positioned for a Nov. 30 referendum on whether the central bank should be required to hold at least 20 percent of its assets in gold, although polls show voters are likely to vote against the proposal.

The Swiss National Bank has said that a 'Yes' vote would limit the central bank's ability to maintain a stable currency.

The franc hit a new two-year high of 1.20175 francs per euro on Thursday, not far from the cap of 1.20 francs that the SNB imposed more than three years ago.

Vice Chairman Jean-Pierre Danthine said on Thursday that the cap would be in place for the foreseeable future.

(Editing by John Stonestreet and Susan Fenton)

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