FOREX-Yen plummets broadly on call for sub-zero lending rates
* Next potential leader of Japan calls for weaker yen
* Euro inches up vs dollar, helped by yen selling
* EU top economic official seeks to rule out write-off of Greece debt
By Julie Haviv
NEW YORK, Nov 15 (Reuters) - The yen tumbled to its lowest against the U.S. dollar since late April on Thursday after the leader of Japan's main opposition party called for a move toward negative interest rates, sapping the currency's appeal despite its safe-haven status.
The euro rallied to a two-week high against the yen and also rose against the dollar, despite data showing the euro zone slid into its second recession since 2009 in the third quarter of 2012.
Shinzo Abe, the head of Japan's Liberal Democratic Party and front runner in next month's election, wants the Bank of Japan to consider sub-zero interest rates and reverse the yen's strength.
Abe, pushing the central bank for bold easing steps, told reporters he wants to work with the BOJ to reverse the trend of yen strength as it hurts the competitiveness of small firms.
"The weakness in the yen is evidence that the market is pointing to the Bank of Japan's potential to become more dovish," said George Saravelos, G10 FX strategist at Deutsche Bank.
"Our forecast is for 82-83 yen for the year end," he added.
Nevertheless, the Bank of Japan is expected to hold its fire at a meeting of its policy board next week and may also defy market expectations of action in December.
The yen has fallen heavily since Japanese Prime Minister Yoshihiko Noda indicated he would call a snap election in December.
The dollar rose as high as 81.45 yen, its highest since April 25. It last traded at 81.26, up 1.3 percent on the day.
"The yen may have further room to fall with the election a month away, but worries about the U.S. budget showdown may slow its descent," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington D.C.
The euro last traded at 103.78, up 1.6 percent on the day as investors unwound short euro positions taken earlier this week on concerns about when Greece will receive its next tranche of financial aid.
The European Union's top economic official sought to rule out any write-off of Greece's debt to governments on Thursday after a European Central Bank policymaker said for the first time that a "haircut" on part of it was probable.
The euro rose 0.3 percent to $1.2776, recovering from Tuesday's two-month low of $1.2660. Traders cited buying by European corporates earlier in the session that helped lift the euro.
The single currency looked vulnerable with concerns about slowing growth in the euro zone and uncertainty over aid for Greece and Spain seen by analysts as likely to cap gains.
But some analysts said investors were wary of selling the euro heavily in case policymakers surprised markets with decisive action to tackle the debt crisis.
"They don't want to sell into it too aggressively in case there's a policy response from the European Central Bank that would see people get stopped out of shorts," said Geoffrey Yu, currency strategist at UBS.
"But there are plenty of structural problems out there so people do not want to go long either."
Worries about how U.S. lawmakers can compromise over the federal budget to avert looming spending cuts and tax rises that could tip the economy into recession also curbed the appetite for perceived riskier currencies.
While an array of U.S. data impacted dollar price action, discussion about the U.S. "fiscal cliff" should be a main driver of the greenback for the rest of the year.
The number of Americans filing new claims for jobless benefits surged last week to a 1 1/2-year high.
Separate data showed U.S. consumer prices rose in October and a gauge of manufacturing in New York state showed that activity slowed in November for a fourth straight month. .
Meanwhile, factory-sector sentiment dropped in the U.S. Mid-Atlantic region.
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