The yen slipped to nine-month lows on Friday as Japan looks set to get a prime minister keen to push for more money printing by the central bank to stimulate the moribund economy. Japanese media reported that conservative Liberal Democratic Party (LDP) is set for a stunning victory in elections on Sunday, cementing speculation that LDP leader Shinzo Abe will be in a strong position to push for bold monetary easing.
"The market is growing confident the next government will be one of the most aggressive about easing that you could think of," said a trader at a Japanese bank. The dollar bought 83.85 yen, up 0.3 percent from late US levels, having risen as high as 83.95, within sight of its March peak of 84.187, which is seen as a major resistance.
The euro also rose to an eight-month high of 109.63 yen, and was on track to end the week almost 3 percent higher on the yen. The BoJ's tankan survey also showed that Japanese business sentiment worsened as anticipated, bolstering expectations that the central bank will take fresh easing steps at its policy meeting on Wednesday and Thursday. Still, option-related flows are putting a brake on the yen's slide for now especially at around 84 yen per dollar, and some market players think position-unwinding ahead of the holiday season could set in after key events in the next week. "Given high expectations, it is hard to think the BoJ will come up with surprises. The BoJ is already buying shares, the only central bank that's doing such things," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
The dollar has risen 5.6 percent against the yen in the past month and technically there are signs the pair has risen too fast at least in the short term, with its relative strength index standing well above the "overbought" mark of 70. The dollar eased slightly against risk currencies, such as the euro and the Aussie, on improved risk appetite after Shanghai shares jumped nearly four percent following a strong Chinese manufacturing survey and speculation of government-backed institutional buying in mainland markets.
The euro rose to as high as $1.3110, its highest level in more than a week and last stood at $1.3105, up 0.2 percent on the day. The Australian dollar also gained 0.2 percent to $1.0547, near a three-month peak of $1.0585 earlier in the week. The British pound also regained some ground after having slipped on Thursday as Standard and Poor's cut its outlook for UK government debt to negative, putting the country's triple A rating at risk. It fetched $1.6128, up 0.2 percent.