Yen Drops to Weakest in 7 Years on Election Speculation

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The yen fell to a seven-year low versus the dollar on speculation Japan’s Prime Minister Shinzo Abe is considering postponing a planned sales-tax increase and preparing to call early elections next month.

Russia’s ruble fell as nations threaten to tighten sanctions, while the Swiss franc touched the strongest level versus the euro in two years. Brazil’s real fell for the first time in three days as re-elected President Dilma Rousseff considered the composition of her economic team. The Australian and New Zealand dollars led gains among major currencies.

“It reinforces the bullish dollar-yen view,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone. “In retrospect, the tax hike this year probably hurt the economy more than the officials expected.”

The yen depreciated 0.8 percent to 115.76 per dollar as of 5:02 p.m. New York time and touched 116.10, the weakest level since October 2007. Japan’s currency slid 1.2 percent to 144.41 per euro. The 18-nation common currency gained 0.4 percent to $1.2475.

The dollar may rally another 3.7 percent to 120 yen by the end of this year as short-term investors aren’t heavily positioned for further weakness in the Japanese currency yet, Citigroup Inc. foreign-exchange strategist Osamu Takashima wrote in a research note.

Options Trading

Trading in over-the-counter dollar-yen options totaled $24.1 billion, or 40 percent of overall volume, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Dollar-yen options volume was 78 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis.

The 14-day relative strength index for the dollar versus the yen has stayed above 70 every day this month, a level that some traders see as a signal an asset may have risen too far, too fast and is due to reverse course.

New Zealand’s dollar rose even as the nation’s central bank said the currency’s value is elevated and may drop. The kiwi added 0.8 percent to 78.06 cents per U.S. dollar. The Aussie advanced 0.7 percent to 86.88 U.S. cents.

Brazil’s Rousseff mulled appointments in her economic team after winning re-election by the narrowest margin since at least 1945. Former central bank chief Henrique Meirelles and former deputy finance minister Nelson Barbosa are the front-runners as Rousseff decides on a finance minister, according to three people familiar with the discussions.

Brazil’s real fell 0.2 percent to 2.5563 per dollar.

Ruble Swings

Russia’s ruble fell 1.1 percent to 46.3515 per dollar, paring an advance yesterday that was triggered by a central bank pledge to curb ruble funds available to speculators betting on further declines.

Pressure is building on Russian assets as a two-month-old cease-fire between pro-Russian separatists and Ukraine’s government crumbles amid spreading fighting in eastern Ukraine. Oil’s slide to a four-year low in London is also weighing on the ruble because it dims revenue prospects for the world’s largest energy exporter.

Switzerland’s franc appreciated to within 0.2 percent of the central bank’s 1.20-per-euro limit, the closest it’s been to the cap since September 2012, when the Swiss National Bank said it last sold francs to defend the currency. The franc was little changed at 1.20330 per euro and touched 1.20213 versus the common currency.

Switzerland’s central bank may step in to defend its cap on the franc against the euro at around 1.2010, according to UBS AG, the nation’s largest lender.

“The 2012 precedent suggests that the SNB might intervene and purchase euros at around 1.2010,” Beat Siegenthaler, currency strategist at UBS in Zurich, wrote in a note e-mailed to clients dated yesterday.

Krona Moves

The krona gained as Swedish consumer prices fell 0.1 percent from a year earlier, compared with a median forecast for a 0.2 percent drop among economists surveyed by Bloomberg.

Minutes of the Riksbank’s October meeting showed policy makers saw economic activity strengthening and said they can take further measures to increase stimulus. Officials at the world’s oldest central bank last month cut the main interest rate by 25 basis points to zero.

“That SEK is outperforming on such marginal improvements in inflation data suggests the low level of expectations by markets,” Keng Goh, a foreign-exchange strategist at Royal Bank of Canada in London, wrote in an e-mailed note.

The krona strengthened 0.6 percent to 7.3892 per dollar after touching 7.4534 on Nov. 7, the weakest level since August 2010. It gained 0.2 percent to 9.2179 against the euro.

Japan Policy

Abe is considering a vote on Dec. 14 or Dec. 21 after deciding on the tax increase, Japan’s Yomiuri newspaper reported, citing senior members of the government and the ruling Liberal Democratic Party.

LDP lawmaker Hiroyoshi Sasagawa said in an interview that preparations have begun, though only Abe can call a general election. Abe said in Beijing that he hasn’t decided anything about the timing of an election and that he couldn’t comment on exchange rates as prime minister.

The yen has weakened 6.1 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar added 1.8 percent, while the euro has gained 0.4 percent.

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