Yen hits 7-year low on election-stimulus talk

New York

THE yen last week tumbled for a fourth week on speculation that Prime Minister Shinzo Abe may call an early election, consolidating his mandate for unprecedented stimulus to boost the economy.

The currency reached a seven-year low versus the dollar before the Bank of Japan (BOJ) meets this week, while policy makers surprised markets with additional stimulus at last month's gathering. The US currency rose for a fourth week against its major counterparts on indications that the Federal Reserve will perceive enough economic growth to boost interest rates next year. The pound slumped to its lowest in 14 months after the Bank of England cut growth forecast.

"There are a lot of headwinds for the yen. The BOJ policy is key here because we're in a foreign-exchange market that's trading on policy divergence," said Phyllis Papadavid, a senior global-currency strategist at BNP Paribas in London.

The yen slid 1.5 per cent to 116.29 per dollar in New York last week and reached 116.82, the weakest level since October 2007.

The 18-nation euro rallied 0.6 per cent to US$1.2525 and advanced 2.1 per cent to 145.67 yen.

The dollar has gained 7.1 per cent during the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

The yen has lost 7 per cent, the worst performer, while the euro has declined 0.4 per cent.

New Zealand's dollar was the biggest gainer of the dollar's 31 major peers. The currency rose after Fonterra Cooperative Group, the world's biggest dairy exporter, reiterated its milk payout forecast. It added 2 per cent to 79.08 US cents.

Britain's pound fell for a fourth week, the longest streak of declines since the period ending Aug 22.

It declined after policy makers cut growth forecasts for the UK economy. Gross domestic product will expand 2.9 per cent in 2015 and 2.6 per cent in 2016, according to the Bank of England's quarterly Inflation Report.

The British currency fell 1.3 per cent to US$1.5669, after touching US$1.5593, its lowest level since September 2013.

The Swiss franc appreciated versus the euro, reaching 1.20111, the closest to the central bank's 1.20-per-euro cap since September 2012. BLOOMBERG