Last updated: November 15, 2012 10:37 pm

Yen sell-off continues as election called

The Japanese yen sell-off continued on Thursday driven by an expectation of more easing by the Bank of Japan following the recently announced early election in December.

The Japanese currency fell 1.2 per cent against the US dollar to Y81.15, the first time it has broken through the Y81 mark since April. It has now gained over 2 per cent against the dollar this week, having sat at Y79.37 on November 13.

The aggressive move began after Prime Minister Yoshihiko Noda said he would dissolve parliament on Friday and call a general election if the main opposition party agreed to electoral reform.

The possible next prime minister, Shinzo Abe, leader of the opposition Liberal Democratic party, is a vocal proponent of increased monetary easing by the Bank of Japan and has argued for a sharply increased inflation target.

Significantly, he called on the central bank to push interest rates to zero or below to spur lending, although market watchers believe such a move is unlikely.

The euro also jumped 1.5 per cent against the Japanese yen to Y103.73 as it demonstrated resilience in the face of confirmation that the eurozone fell back into recession in the third quarter of 2012.

The single currency gained 0.4 per cent against the US dollar to $1.2788 and 0.2 per cent against sterling to £0.8054 even as the region’s economy contracted by 0.1 per cent in June to September, compared with the previous three months.

The fact that analysts had expected a slightly steeper fall alongside some resilience in the region’s core economies of France and Germany supported the single currency.

The Australian dollar rose against the yen, up 0.7 per cent to Y83.82, but fell 0.5 per cent against the dollar to a two-week low of $1.0324 as the Reserve Bank of Australia appeared to persist with what has been termed “passive intervention”.

The RBA has been allowing its foreign currency holdings to increase at a greater pace than usual, implying it has refrained from its usual practice of balancing foreign currency inflows by buying Australian dollars in the spot market. That would reduce upward pressure on the Aussie, which has gained 7.9 per cent since June.

The dollar index was flat at 81.1 points following Wednesday’s release of the minutes from the US Federal Reserve’s October meeting.

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