The yen fell to the weakest level since April 2011 versus the dollar after Shinzo Abe’s Liberal Democratic Party won Japanese elections yesterday, giving him a mandate to act on pledges of expanded monetary stimulus. Japan’s currency fell against most of its 16 major counterparts before Bank of Japan (8301) policy makers meet on Dec. 19-20. Abe has called for the central bank to double its inflation goal to 2 percent and undertake unlimited easing to revive economic growth. The Australian and New Zealand dollars led declines among higher-yielding currencies as Asian stocks snapped a 12-day advance. “There is definitely more room for yen weakness going into next year,� said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S (DANSKE) in Copenhagen. “What’s going on in Japan is very significant. There’s likely to be some easing at this week’s meeting, but more important is that we might see a hike of the inflation target next year.� The yen fell 0.2 percent to 83.69 per dollar at 11:06 a.m. London time after depreciating to 84.48, the weakest since April 12, 2011. Japan’s currency dropped 0.2 percent to 110.07 per euro. It earlier declined to 111.32, the least since March 21. The euro was little changed at $1.3152. The LDP won 294 seats in the 480-member lower house of parliament. Outgoing Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-quarters of its lawmakers, according to public broadcaster NHK. LDP partner New Komeito won 31 seats, giving the coalition a two-thirds majority that would enable it to override most decisions by the upper house, where the DPJ is the largest party. Easing ‘Possibility’ The election results mean “the monetary policy which Abe has been advocating will become a real possibility,� said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole Corporate & Investment Bank. “The market may try to weaken the yen beyond the psychological level of 85� per dollar, he said. Japan’s currency has fallen 5.3 percent in the past month, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 2.2 percent, and the euro gained 1.3 percent. Futures traders increased bets to the most since July 2007 that the yen will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 94,401 on Dec. 11, compared with 90,326 a week earlier. Reflation Path “This is going to have a tremendous impact on the fortunes of Japanese exporters and the economy,� Ed Rogers, chief executive officer at Tokyo-based Rogers Investment Advisors, said in a Bloomberg Television interview today. “The moves in the dollar-yen indicate that the world at large believes that we’re starting on the path to reflation.� The Australian dollar declined 0.3 percent to $1.0530 and the New Zealand currency also slid 0.3 percent, to 84.36 U.S. cents. The MSCI Asia Pacific Index of shares dropped 0.1 percent. The dollar rose against most of its major peers as U.S. budget negotiations remain unresolved, just two weeks before more than $600 billion in tax increases and spending cuts, known as the fiscal cliff, will take effect. “With the deadline in only two weeks, we expect investors to start pricing in the chance of politicians failing to agree on the fiscal cliff issues in the coming days,� Yuki Sakasai, a currency strategist at Barclays Plc in New York, wrote in a note to clients yesterday. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

Source