(Corrects day of FOMC minutes release, paragraph 13, from
Tuesday to Wednesday)
* Japan PM Noda open to dissolving parliament on Friday
* Dollar/yen, euro/yen surge after Noda's comments
* Euro off a two-month low vs dollar
By Anirban Nag
LONDON, Nov 14 The yen fell sharply on Wednesday
after Japanese Prime Minister Yoshihiko Noda said he was open to
dissolving the lower house of parliament later this week and to
hold elections next month.
The prospect of an early election is regarded as negative
for the currency, as the most likely victor would be the main
opposition Liberal Democratic Party (LDP). An LDP-led government
is expected to put more pressure on the Bank of Japan (BOJ) to
further ease monetary policy and that would weigh on the yen.
The yen fell against the dollar and the euro as hedge funds
and long-term investors such as reserve managers sold. The
dollar rose 0.7 percent to 79.90 yen and the euro climbed
0.9 percent on the day to 101.75 yen.
Noda, whose ruling Democratic Party could be headed for a
drubbing according to a media poll, told parliament he would be
willing to dissolve parliament on Nov. 16 and hold elections in
December if the opposition agreed to pass reforms to the
"Ultimately, both parties will put pressure on the Bank of
Japan to ease policy," said Neil Mellor, currency strategist at
Bank of New York Mellon. "Whether the opposition LDP will put
more pressure is something investors will be looking out for."
Shinzo Abe, the opposition LDP's leader and possible prime
minister, is a vocal critic of the BOJ, and has called for
setting a 3 percent inflation target, higher than the central
bank's 1 percent goal. He has also been pressuring the bank to
take bolder action to fight deflation.
"The financial markets can now begin to price more
confidently the risk of more overt political pressure on the BOJ
to rid Japan of deflation," Derek Halpenny, European head of
global market research at Bank of Tokyo Mitsubishi, wrote in a
"This is a clear yen-negative story for 2013. The spike
today also is indicative of a short-term market that has
increasing appetite for selling the yen."
Investors are also worried the LDP may be less committed to
fiscal belt-tightening measures such as planned tax hikes than
"The yen could weaken for both of those reasons," said
Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo.
FED AND THE DOLLAR
The yen aside, the dollar eased against most major
currencies including the euro and the Australian dollar
on growing signs that the Federal Reserve is likely to
adopt an ultra-loose monetary stance in coming months.
Influential Fed Reserve Vice Chair Janet Yellen said on
Tuesday that U.S. interest rates may need to stay near zero
until early 2016 to forcefully lift employment.
The minutes from the latest Federal Open Market Committee
meeting will be released later on Wednesday and is likely to
confirm an easy policy bias for sometime to come, a factor which
could limit the dollar's recent gains.
The dollar index was slightly lower on the day at
81.045, having hit a two-month high of 81.241 on Tuesday.
The euro was up 0.2 percent at $1.2734, helped mainly
by its gains against the yen.
The single currency has rebounded from a two-month low of
$1.26610 struck on Tuesday on expectations that debt-laden
Greece could receive aid worth roughly 44 billion euros at one
But that cannot happen until international lenders reach a
broader agreement on the sustainability of Greece's debt, all of
which is likely to check the euro's gains.
(Additional reporting by Masayuki Kitano in Singapore; Editing
by Pravin Char)