Yen Drops as Abe Delays Sales Tax, Calls Early Vote; Ruble Rises 

Japan's Prime Minister Shinzo Abe

The yen fell against the euro and touched its weakest in more than seven years against the dollar as Japanese Prime Minister Shinzo Abe called an early election and suspended a planned sales-tax increase.

Japan’s currency slipped against most of its 16 major peers as Abe said he will dissolve parliament on Nov. 21. The euro rallied as German investor confidence rose for the first time in 11 months. Russia’s ruble strengthened as the tax season approaches. South Africa’s rand lead a rally among the 16 major currencies, while New Zealand’s dollar strengthened before a dairy auction.

“The market has really been on the lookout for such a development,” Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc. in Washington, said by phone. “This will keep the yen bias broadly lower.”

Japan’s currency depreciated 0.5 percent to 145.88 per euro at 8:55 a.m. New York time, after trading at 146.70, the weakest since October 2008. The yen reached 117.05 per dollar, matching the weakest level since October 2007, before trading at 116.43. The 18-nation euro rose 0.6 percent to $1.2530.

Market Measure

Japan’s currency has tumbled 7.3 percent in the past month, the worst performer among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Indexes. The Topix index of Japanese stocks jumped 2.1 percent.

A measure used to set option prices and gauge the expected pace of currency swings rose to the highest in 14 months. Implied volatility for one-month options on the dollar versus the yen rose to 12.28 percent, the highest since September 2013. The average this year is 7.25 percent.

The yen has declined almost 1.5 percent against the dollar since Yomiuri newspaper reported on Nov. 11 that Abe would take the steps to rescue the economy that slipped into recession last quarter. Japan’s economy shrank an annualized 1.6 percent in the third quarter, after contracting a revised 7.3 percent in the previous three months, a report showed Nov. 16.

“We have good sentiment in Japan for the stock market because of the tax hike taking place later, and on the other hand you have the political uncertainty that is bad for the yen,” said Soeren Hettler, a senior foreign-exchange analyst at DZ Bank AG. in Frankfurt.

Ruble Rises

The ruble strengthened to 0.5 percent to 46.8700 per dollar, a second day of gain. Demand for rubles may increase further as Russian companies are expected to pay as much as 700 billion rubles ($15 billion) in taxes from Nov. 20 to Nov. 28, according to OAO Bank Zenit.

Russia’s Finance Ministry will offer 5 billion rubles of local-currency securities due in May 2016, returning to the market after five canceled weekly auctions amid the ruble’s rout.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to 11.5 in November from minus 3.6 in October. Economists had forecast a rebound to 0.5, according to the median of estimates in a Bloomberg News survey.

Sweden’s krona climbed against all except two of its 16 major peers as Riksbank Governor Stefan Ingves said currency market intervention is not a measure the central bank is considering “whatsoever.” The currency is roughly at the level the central bank expected, he said in Stockholm.

The krona appreciated 0.8 percent to 7.3811 per dollar and strengthened 0.2 percent to 9.2443 against the euro.

The rand rallied 1 percent to 11.0179 versus the dollar, while the New Zealand’s dollar rose 0.7 percent to 79.69 U.S. cents, in its sixth day of gains.

Traders are watching for signs that prices at auctions for New Zealand’s dairy products are stabilizing, analysts at National Australia Bank Ltd., including Global Head of Research Peter Jolly, wrote in a note to clients.

Source: Bloomberg – Yen Drops as Abe Delays Tax Increase Amid Recession; Euro Climbs

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