Yen Drops First Time in Four Days Before Elections as Won Gains 

The yen fell for the first time in four days on speculation Prime Minister Shinzo Abe’s Liberal Democratic Party will win an election this weekend and extend measures that have weakened the currency.

The yen dropped versus all of its 16 major peers amid concern the Bank of Japan will need to maintain stimulus to help the economy emerge from a recession. Australia’s dollar advanced for a second day after a government report showed employers added more jobs than economists forecast.South Korea’s won rose to the strongest in three weeks as the currency caught up with gains in the yen yesterday. A gauge of global foreign-exchange volatility increased to a 15-month high.

“If the election turns out as the market expects — which is a significant win by the LDP — that will lead to Abenomics being carried out even more and that is something that can weaken the yen further,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “We’ve seen dollar-yen dropping to 117 from 121, so it’s only natural to see some rebound, but the upside will eventually be limited.”

The yen fell 0.4 percent to 118.25 per dollar at 2:09 p.m. in Tokyo after surging 3 percent during the previous three days. Japan’s currency declined 0.4 percent to 147.20 per euro. The dollar was unchanged at $1.2448 per euro.

Abe’s party alone may win more than 300 of 475 lower house seats in the Dec. 14 Japanese election, Kyodo News reported yesterday. The LDP’s coalition partner Komeito may win more than the 31 seats it currently holds, the agency said, citing a telephone survey.

Yen’s Slide

The yen has tumbled more than 30 percent versus the dollar in the past two years as Abe implemented his economic policy of monetary easing, fiscal spending and structural reform.

The won climbed for a third day as it caught up with the yen’s gain made yesterday after Korea’s currency ended trading. The won tends to track the yen because companies in the two countries compete in overseas markets.

The Bank of Korea kept its benchmark interest rate at 2 percent today, a decision predicted by 17 of 20 economists surveyed by Bloomberg. Three forecast a cut to 1.75 percent.

“Today’s gains in the won are driven by the drop in the dollar-yen rate,” said Son Eun Jeong, a currency analyst at Woori Futures Co. in Seoul “The BOK’s rate decision had little impact on currencies, but will cap the won’s appreciation if it turns out the verdict wasn’t unanimous.”

The won jumped 0.4 percent to 1,098.40 per dollar after advancing to 1,095.60, the strongest since Nov. 17.

Aussie Rises

Australia’s dollar rose versus 12 of its 16 major counterparts as the statistics bureau said the number of people employed climbed by 42,700 in November, compared with the median estimate for a 15,000 increase in a Bloomberg News survey.

The Aussie strengthened 0.1 percent to 83.26 U.S. cents after appreciating 0.3 percent yesterday. The currency’s two-day advance comes after it fell for nine straight days through Dec. 9, the longest losing streak since it was floated in 1983.

JPMorgan Chase & Co.’s global foreign-exchange volatility index climbed as high as 9.60 percent yesterday, the most level since September 2013. The index has increased from this year’s low of 5.28 percent set in July.

A gauge of the dollar reached the lowest level in a week amid speculation its recent gains have been too rapid.

The U.S. currency has rallied for the past five months amid speculation an improving economy will convince the Federal Reserve to raise interest rates. Policy makers, who meet on Dec. 16-17, will increase their benchmark from the current range of zero to 0.25 percent in about eight months, data compiled by Morgan Stanley show.

‘Fairly Shallow’

“My most likely scenario is that the dollar correction we’re seeing will be fairly shallow and won’t go too much further,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “The U.S. economy is looking significantly stronger than other economies — Japan and Europe in particular — and that is likely to continue to be the driving dynamic.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against those of 10 trading partners, was little changed at 1,111.84, after dropping 1 percent during the previous three days.

Source: Bloomberg – Yen Drops First Time in Four Days Before Elections as Won Gains

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