Yen Falls to Seven-Year Low on Election Outlook as Won Drops 

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The yen declined to a seven-year low versus the dollar amid speculation Prime Minister Shinzo Abe will win elections and extend his economic stimulus program.

Japan’s currency dropped against all except one of its 16 major counterparts. A gauge of the dollar headed for its highest close since 2009 before a U.S. consumer-price report today amid speculation an improving economy will push up Treasury yields. The won tumbled to near a 15-month low as the plunging yen made South Korea’s exports less competitive. Australia’s dollar fell to a two-week low after an index of Chinese manufacturing dropped in November.

“The dollar should be supported against the yen into elections,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo. “Should U.S. yields start rising, a climb to 120 would be in sight.”

The yen slid 0.5 percent to 118.56 per dollar at 2:08 p.m. in Tokyo after depreciating to 118.58, the weakest level since August 2007. Japan’s currency fell 0.4 percent to 148.74 per euro having earlier dropped to 148.76, the least since October 2008. The dollar was little changed at $1.2545 per euro.

The yen has slumped 2.5 percent in the past week, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The Bank of Japan yesterday maintained record stimulus and Abe called an early election the previous day.

Abe’s ruling Liberal Democratic Party will likely win a majority in the election, Nicholas Smith, a strategist at CLSA Ltd. in Tokyo, wrote in a report dated Nov. 18.

Exports Improve

The yen fell even as a government report showed exports rose the most in eight months.

Outward shipments increased 9.6 percent from a year earlier to the highest since October 2008, the finance ministry said. Imports grew 2.7 percent, leaving a trade deficit of 710 billion yen ($6 billion). Data earlier this week showed gross domestic product unexpectedly shrank an annualized 1.6 percent last quarter, putting the economy in its fourth recession since 2008.

South Korea’s currency dropped 0.9 percent to 1,116.48 per dollar after reaching 1,117.07 earlier, the lowest level since August 2013.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose 0.1 percent to 1,099.33, poised for the highest close since March 2009.

The dollar strengthened yesterday as minutes from the Federal Reserve’s October meeting boosted speculation policy makers are moving toward higher interest rates.

‘Dollar-Strength Story’

“The dollar is likely to rise toward 120 yen this month,” said Masato Yanagiya, head of foreign exchange and money trading at Sumitomo Mitsui Banking Corp. in New York. “The Fed’s minutes mentioning about the decline in inflation expectations doesn’t change the dollar-strength story. It’s more likely there will be nothing left to stop the dollar’s ascent.”

U.S. consumer prices fell 0.1 percent last month, based on a Bloomberg News survey of economists before today’s report. Separate data today will show first-time jobless claims fell last week and a gauge of manufacturing rose in November.

The Australian dollar dropped for a second day as HSBC Holdings Plc and Markit Economics said their preliminary Purchasing Managers’ Index for China fell to 50 this month from 50.4 in October. Numbers above 50 indicate expansion. China, Australia’s largest trading partner, is headed for the slowest full-year growth in more than two decades.

The Aussie fell 0.3 percent to 85.90 U.S. cents after declining to 85.84 cents, the lowest level since Nov. 7.

Source: Bloomberg – Yen Falls to Seven-Year Low on Election Outlook as Won Drops

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