Yen weakens as Abe victory removes threat to BOJ's easing policy

[TOKYO] The yen fell to the lowest in more than three months after Prime Minister Shinzo Abe's ruling coalition maintained its majority in Sunday's general election, signaling continuity with his platform of fiscal spending and monetary easing.

The yen dropped 0.3 per cent to 113.91 per US dollar as of 7:27am in Tokyo. It fell to 134.04 per euro, from 133.77 on Friday.

The ruling coalition, made up of the Liberal Democratic Party and Komeito, picked up 312 seats according to unofficial tallies, compared with the 310 needed for a so-called super-majority. The Prime Minister's policy of Abenomics has spurred a more-than 20 per cent decline in the yen since he took office in December 2012, while the Nikkei 225 Stock Average has more than doubled.

"The election outcome strengthens expectations for Bank of Japan Governor Haruhiko Kuroda's reappointment or somebody with a similar stance being selected as next governor to extend the current unprecedented monetary easing, making USD/JPY more responsive to any rise in US yields," said Yuji Saito, executive director at Credit Agricole CIB's FX department in Tokyo.

While the Abenomics policy of monetary easing, fiscal stimulus and structural reforms has pushed down the currency, the BOJ has yet to reach its policy goal of boosting the annual inflation rate close to 2 per cent.

The new administration will need to pick who would lead the BOJ given that the term of Mr Kuroda, who has overseen unprecedented easing, ends in April.

The yen will trade at 113 per US dollar by year-end, according to the median estimate in a Bloomberg survey of economists. The currency has traded between 107.32 and 118.60 this year.

With Japanese politics out of the way, markets will focus on US factors such as bilateral trade talks, the US's desire to weaken the dollar, US tax reforms and US politics leading into next year's mid-term elections, said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp in Tokyo.

BLOOMBERG