Yen hits seven-month low

The yen hit a seven-month low against the dollar on Monday, hurt by expectations that a new Japanese government will push the Bank of Japan into taking aggressive monetary stimulus measures to boost economic growth. The dollar rose to as high as 81.59 yen on trading platform EBS, its highest level since April 25. The dollar later pared its gains and last traded at 81.25 yen, down 0.2 percent from late US trade on Friday.
Investors have dumped the yen after the government set elections for December 16 and the leader of the opposition Liberal Democratic Party (LDP), which is expected to win the poll, called on the Bank of Japan to print "unlimited yen" and set interest rates at zero or below to boost the economy.
Some market participants said the yen may find support after last week's 2.4 percent drop against the dollar, the Japanese currency's biggest weekly percentage drop in nine months. But, analysts said the medium-term outlook remained fragile. "We've travelled too far, too fast over the last week or so," said Gareth Berry, a strategist for UBS in Singapore.
In the short term, the yen might regain some ground against the dollar if the Bank of Japan refrains from announcing additional monetary easing on Tuesday, Berry said. The BoJ holds its policy meeting on Monday and Tuesday, but most analysts doubt whether any major changes will be unveiled. Sources familiar with the central bank's thinking have said that the BoJ may push back any further monetary stimulus until early next year in order to size up the policies of the new government.
Given the potential for more monetary easing later, analysts said the yen could fall further over a longer-term horizon, such as the next six months to a year. "On a six-month view, dollar/yen higher is a great trade," said Berry at UBS. BoJ Governor Masaaki Shirakawa has strongly opposed pushing interest rates down to zero, but his term ends in April, and the government can choose his replacement.
The euro held steady at 103.65 yen. Earlier, the single currency rose to as high as 104.15 yen, the euro's highest level against the Japanese currency in about a month. Against the dollar, the euro edged up 0.1 percent to $1.2758. The common currency found a floor at a two-month trough of $1.2661 last week after suffering a 3.6 percent-slide from mid-October on growing worries over Greece and the euro zone's economic outlook. The euro's immediate fortunes are seen hinging on whether euro zone finance ministers can agree with the International Monetary Fund on a stop-gap financing programme for Greece. The ministers are due to meet on Tuesday.