* Japan PM Noda open to dissolving parliament on Friday
* Analysts expect more pressure on BOJ to ease policy
* Dollar/yen, euro/yen surge after Noda's comments
* Euro off a two-month low vs dollar
By Philip Baillie
LONDON, Nov 14 The yen fell sharply on Wednesday
after Japanese Prime Minister Yoshihiko Noda said he was ready
to dissolve the lower house of parliament later this week and
hold a snap election next month.
With the main opposition Liberal Democratic Party (LDP),
which favours further monetary policy easing by the Bank of
Japan, leading in opinion polls, the prospect of an early
election is regarded as negative for the currency.
LDP leader Shinzo Abe called on the central bank on
Wednesday to print "unlimited yen" to achieve a new inflation
The yen fell against the dollar and the euro as hedge funds
and long-term investors such as asset managers sold, traders
said. The dollar rose 0.9 percent to 80.12 yen and the
euro climbed 1.2 percent on the day to 102.10 yen.
Noda told parliament he would be willing to dissolve the
lower house on Nov. 16 and hold elections in December if the
opposition agreed to pass reforms to the electoral system. A
senior lawmaker from his ruling Democratic party said an
election was likely to be held on Dec. 16.
"It is very likely the LDP will take over the lower house
again and very clear they will be pressuring the BOJ to become
more dovish as they have spoken about raising the inflation
target," said Geoff Kendrick, currency analyst at Nomura.
"We are expecting dollar/yen to head up to around 82 yen by
the end of the year and then head higher again next year so we
are certainly biased towards a buy dollar/yen position."
The LDP's Abe, a vocal critic of the BOJ, has called for a
new 3 percent inflation target, three times the current goal,
and for 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
note. He expected the yen to be under pressure in coming months.
Investors are also worried the LDP may be less committed to
fiscal belt-tightening measures such as planned tax hikes than
Noda's party, adding to caution about the yen.
FED AND THE DOLLAR
The yen aside, the dollar eased against most major
currencies including the euro and the Swiss franc
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 are likely to
confirm an easy policy bias for some time to come, a factor
which could limit the dollar's recent gains.
"It is likely we will get a discussion around more QE being
done in the December meeting. What happens between now and then
depends on fiscal cliff discussions, if they can get an
agreement passed by the Fed meeting then they may not do
quantitative easing," Nomura's Kendrick added.
The dollar index was slightly lower on the day at
81.061, having hit a two-month high of 81.241 on Tuesday.
The euro was up 0.3 percent at $1.2735, helped by its
gains against the yen. It has rebounded from a two-month low of
$1.26610 on Tuesday on expectations that debt-laden Greece could
receive aid worth roughly 44 billion euros at one go.
But that cannot happen until international lenders reach a
broader agreement on the sustainability of Greece's debt, which
is likely to check the euro's gains.
Sterling hit a two-month low against the dollar of
$1.5855 after the Bank of England's inflation report painted a
gloomy outlook for the UK economy and governor Mervyn King said
quantitative easing could still be restarted.