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US dollar's advance vs yen slows on caution before Japan vote, euro steadies

[TOKYO] The US dollar was steady against the yen on Tuesday with its advance as traders considered the implications of Japan's snap general election later in the month, while the euro steadied after sliding in response to a violence-marred Catalonia vote.

The US dollar was flat at 112.750 yen.

Despite bullish factors - a measure of US manufacturing activity surged to a 13-1/2-year high last month and the Treasury 10-year yield rose to a three-month high - the greenback only gained 0.2 per cent against the yen overnight. It remained well off a two-month high of 113.260 set last week.

"The yen is looking firm against the US dollar, with one-month US dollar/yen risk reversals showing dollar puts are more popular. What this means is that participants, particularly foreigners, are wary of the upcoming elections and its possible negative impact on Abenomics," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

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Market participants try to hedge against currency risk and volatility through the use of risk reversals, in which "puts" give them the option to sell.

Japanese Prime Minister Shinzo Abe last week dissolved the parliament's lower house and called a snap election for Oct 22.

Mr Abe's ruling Liberal Democratic Party (LDP) was initially expected to win the election with relative ease. An easy win, however, is looking less assured with popular Tokyo governor Yuriko Koike forging an alliance of opposition parties to challenge the LDP.

The euro was steady at US$1.1731 after sliding 0.7 per cent against a dollar boosted by data overnight.

The common currency also took a knock on Monday as Spain faced its biggest constitutional crisis in decades after Sunday's independence referendum in Catalonia.

"The impact on the euro from the Catalonia vote is likely to fade. Other euro zone markets, like those in Germany, have taken the vote in stride. Wanting independence and actually achieving it are also two different matters," Mr Ishizuki at Daiwa Securities said.

The US dollar index against a basket of six major currencies was 0.1 per cent higher at 93.653.

The Australian dollar was little changed at US$0.7826, having pulled back overnight from a 2-1/2-month low of US$0.7795.

The Aussie awaited a policy decision by the Reserve Bank of Australia slated at 0330 GMT for potential cues.

The central bank is widely expected to keep interest rates on hold at a record low of 1.5 per cent with the focus on its assessment of the economy and how that could impact is monetary policy.

REUTERS