14/12/2012 16:40:00

CURRENCIES: Dollar Falls Vs. Yen Before Japan Election

By Deborah Levine and Sara Sjolin, MarketWatch

SAN FRANCISCO (MarketWatch) -- The dollar turned lower against the yen on Friday ahead of Japan's general election over the weekend and also lost ground against the euro and other major currencies.

The ICE dollar index (DXY), which measures the greenback against a basket of six rival currencies, fell to 79.680 from 79.925 in late North America trade on Thursday.

The dollar turned down to Yen83.49 from Yen83.65 the prior day.

The dollar rose over the last several days to its highest level since March versus the yen on expectations Japan's Liberal Democratic Party leader Shinzo Abe will win in Sunday's election. He's called for more aggressive monetary easing and higher inflation.

"Abe has promised to boost nominal economic growth to 3% with the help of government stimulus programs and expansionary monetary policy," analysts at Commerzbank said in a note.

"Should he really implement the announced measures, significant yen depreciation would be the result. The currency has been under considerable pressure for some weeks, consistently remaining above the USD/JPY mark of 82. The options market is also clearly betting on a weaker yen," they said.

The dollar is still up 1.3% this week versus its Japanese counterpart.

As for the euro, it added to the week's gains versus the greenback, leaving it up 1.4% from a week ago.

Among other major currency pairs, the euro climbed to $1.3139 from $1.3077 in late trade on Thursday. It hasn't ended above $1.31 since Oct. 17, according to FactSet.

Most European equity markets were also on the rise, the Stoxx 600 Europe index gaining 0.1%, after the purchasing managers' composite output index for the euro zone showed the economic downturn eased in December.

"European officials also had a good week," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a note. "Aid to Greece was approved, averting a more serious crisis. The broad strokes of the European Central Bank taking on the responsibility of supervisor for important (nationally or systemically) banks has been agreed upon."

"Yet there is still much to be concerned about" as more austerity in other countries could lead to political changes that can strain the relationship between countries needing aid and those being asked to give it, he added.

The pound rebounded against the dollar to trade at $1.6438 from $1.6112 Thursday, when Standard & Poor's Ratings Services cut its outlook on the U.K.'s triple-A credit rating to negative from stable.

The Australian dollar rose to $1.0551 from $1.0527.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

December 14, 2012 11:40 ET (16:40 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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