Sept. 12 (Bloomberg) -- The euro fell to a two-week low against the yen and dropped versus the dollar after Japanese Prime Minister Junichiro Koizumi was re-elected and polls show none of Germany's parties will get a majority in next weekend's election.

Koizumi's victory yesterday gives him a mandate to accelerate spending cuts and sell the country's postal system. In Germany, at least four polls in the past week show opposition leader Angela Merkel failing to win enough support to push through changes to spur growth in Europe's largest economy.

``With the very clear win in Japan and uncertainty about who will win in Germany, we are likely to see buying of the yen against the euro,'' said Kosuke Hanao, head of foreign exchange in Tokyo at Royal Bank of Scotland Group Plc.

The euro dropped to 135.34 yen as of 7:20 a.m. in London, from 136.11 on Sept. 9 in New York, according to currency trading system EBS. The 12-nation currency fell to $1.2337 from $1.2410.

Declines in the euro accelerated after a drop below $1.2380 triggered automated selling orders, said Luke Waddington, head of interbank currency sales in Tokyo at RBS. There were further orders around $1.2370, according to Tetsu Aikawa at UFJ Bank in Tokyo.

`Tide is Turning'

The Christian Democratic Union's Merkel may not win enough support to form a coalition with her preferred partner, the Free Democrats, according to three opinion polls last week.

``Wherever I go, I encounter a lot of support,'' Schroeder was quoted as saying in the Bild am Sonntag tabloid yesterday. ``The tide is turning.''

In Japan, the victory by Koizumi's Liberal Democratic Party gives him a mandate to accelerate spending cuts, pursue policies to boost investment and privatize the country's postal system, the world's largest financial institution.

``This is Koizumi fever and nobody, not even people in Japanese political circles, expected this kind of major triumph,'' said Toru Umemoto, a currency strategist in Tokyo at Barclays Plc. ``Foreign investors are becoming extremely bullish on the yen and Japanese stocks on expectations Koizumi will have political stability and accelerate the speed of structural reforms.''

The Nikkei 225 Stock Average today climbed 1.2 percent, extending a more than four-year closing high reached on Sept. 9, the last trading day before elections. The Japanese currency rose the most in a month that day as investors bet Koizumi would increase his coalition's majority.

Japan's ruling coalition won 327 of the 480 seats in the lower house of parliament, up from 246 before the elections.

Before voting began, investors had expected about 250 to 260 seats for the ruling Liberal Democratic Party, said Mitul Kotecha, head of currency strategy in London at Calyon, the securities unit of Credit Agricole SA of France.

Faster Growth

Japan said the economy grew 3.3 percent in the second quarter, three times faster than initially estimated, the Cabinet Office said today in Tokyo. That compares with an Aug. 12 estimate for a 1.1 percent annualized rate of expansion and the median 1.5 percent forecast by 18 economists surveyed by Bloomberg News.

The German economy, Europe's largest, will expand 0.5 percent in the third quarter, the Berlin-based DIW economic research institute said Sept. 9. Growth stalled in the second quarter.

Polls in Germany show Schroeder's Social Democrats are closing the gap on Merkel's Christian Democratic Union and its Bavarian sister party, the Christian Social Union.

Support for the CDU fell 2 points to 41 percent in a survey by polling company FG Wahlen for the ZDF television network published Sept. 9. Schroeder's SDP gained 2 points to 34 percent. Voters were polled Sept. 6-8, after a Sept. 4 television debate between Schroeder and Merkel.

To contact the reporter on this story: Rodrigo Davies in London at rdavies13@bloomberg.net.

Last Updated: September 12, 2005 02:49 EDT